SEC chief criticises his bosses for not setting example

William Donaldson, chairman of the US Securities and Exchange Commission, has accused many US bosses of failing to provide "ethical" leadership for their companies.
Hitting back at critics of "over-regulation", Mr Donaldson said corporate governance had improved following the wave of financial scandals, but stressed that senior executives had to set an example that went beyond the letter of the law.
The lack of progress in linking boardroom pay more closely to performance showed that many were failing to give such leadership, the chief US financial regulator said. "The tone is set at the top. You must have an internal code of ethics that goes beyond the letter of the law to also encompass the spirit of the law.
"Does that concept exist in all companies? No. All you have to do is look at executive compensation to recognise that we still have a way to go." He said pay should be based on performance, not on what outside consultants advised.
Mr Donaldson denied claims
that the regulatory pendulum had swung too far, and defended the corporate governance reforms in the Sarbanes-Oxley legislation: "Sarbanes-Oxley was a very important catalyst needed to change behaviour for the better."
His comments come as he fights a business backlash against a series of regulatory initiatives. The US Chamber of Commerce recently launched a legal action to try to overturn the SEC's new rule requiring mutual funds to have an independent chairman.
Mr Donaldson is also facing fierce opposition to a proposal to
force all hedge funds to register with the agency.
He says the plan is necessary to enable regulators to protect hedge fund investors and the rest of the financial system.
"We would be severely criticised if we did not do the most simple thing to get basic information so we can get our arms around the [hedge fund] industry and understand it better."
He said there was a "gold rush" of people entering the industry, many of whom had never managed funds, and there was concern that the industry's deteriorating performance would
encourage some managers to take big risks to justify high fees.
Opponents of the registration plan include Alan Greenspan, chairman of the Federal Reserve, who argues that hedge funds have an important role providing liquidity in the financial system.
Mr Donaldson said: "Concern about protecting the liquidity provided by hedge funds must be balanced against a simple question. 'How much fraud are you willing to tolerate for liquidity?' I think the answer is zero."