December 16, 2002

Three White House Nominees, One Goal: Investor Con

WASHINGTON (HedgeWorld.com)--President George W. Bush put in place a new economic team adding at least two, possibly three new figures to his administration, with the over-riding goal of upholding what the President Tuesday called "the highest standards of integrity in the securities markets."

He nominated John W. Snow, of CSX Corp., Richmond, Va., for Secretary of the Treasury and William Donaldson, for chair of the Securities and Exchange Commission. Stephen Friedman is widely regarded as the near-certain nominee to become the next chairman of the National Economic Council, the successor to Lawrence Lindsey, but that is not yet official.

John W. Snow, the Secretary of the Treasury designate, has a background in basic (non-financial) industry reminiscent of that of his predecessor, Paul O'Neill, (Previous HedgeWorld Story). Mr. Snow has been the chief executive of CSX Corp., which operates one of the largest rail networks in the eastern United States, since 1989. He became its chairman in 1991.

But what may have been more important in his selection is that he is also active on The Conference Board, a business networking organization, and co-chaired its Commission on Public Trust and Private Enterprise, a 12-person body that this summer called upon America's corporations to reform executive compensation.

The commission's report said that performance-based executive compensation is too often linked to short-term goals, thus allowing windfalls due to stock market fluctuations unrelated to the actual contributions of the executives involved. It urged the Financial Accounting Standards Board and the International Accounting Standards Board to "move expeditiously to determine appropriate accounting treatment for equity-based compensation" in order to bring about a longer-term focus.

The other chair of that commission, Peter G. Peterson, Tuesday praised President Bush's decision to name Mr. Snow to the cabinet. "He had the integrity--and guts--to take on the tough issues of executive compensation as well as corporate governance. I think he will be an effective salesman, in the best sense of that word, of the Administration's economic policies."

William Donaldson

Speaking briefly in the Roosevelt Room of the White House after the announcement of his nomination to chair the SEC, Dec. 10, William Donaldson, former chairman of the board of the New York Stock Exchange, acknowledged that the confidence of investors in the integrity of the markets has taken a hit in recent months and must be restored.

"Despite the historical soundness...of American industry as a whole, there have clearly been numerous instances of serious malfeasance which if proven we will continue--and must continue--to deal with swiftly," he said.

From February 2000 to April 2001, Mr. Donaldson was the president and chairman of the board of Aetna Inc., Hartford, Conn. This was a crucial period during which the company sold Aetna Financial Services and Aetna International, refocusing on its core as a provider of health insurance and group benefits.

Mr. Donaldson was the chairman of the NYSE from 1991 to 1995. President Bush praised his work in that capacity, both in setting high business standards and in working for the interest of the small investor.

Mr. Donaldson was the founding dean of the Yale School of Management, and one of the founders and namesakes of Donaldson, Lufkin, & Jenrette, a Wall Street brokerage recently absorbed by Credit Suisse First Boston.

Stephen Friedman

Stephen Friedman, a former co-chairman of The Goldman Sachs Group Inc., is expected to be named the chief White House economic adviser, although the President has not yet made that official.

Mr. Friedman's appointment might be a concession of a sort, by the administration, to the Democrats in Congress--because during Mr. Friedman's tenure at Goldman Sachs in the 1980s, he shared office and responsibility with Robert Rubin, who went on to become the Treasury Secretary in the Clinton administration.

Perhaps for this same reason, conservative groups are said to have expressed dissatisfaction with the prospect of this appointment.

Nonetheless, CNN reported Tuesday afternoon, its sources claim that the only barriers to Mr. Friedman's nomination are a reported health problem on the one hand and a continuing review of his complicated portfolio on the other. Conservative opponents of his nomination have already lost the in-house fight on its merits. The White House expects to complete the final reviews of bodily and portfolio health and make an announcement within 48 to 72 hours.

CFaille@HedgeWorld.com

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