Apr 16, 2003 By Marcy Gordon Ap Business Writer 5 min read

WASHINGTON (AP) – The Securities and Exchange Commission on Tuesday announced it has chosen William J. McDonough, president and chief executive of the Federal Reserve Bank of New York, to head the new agency created by Congress to oversee the accounting industry. The five SEC commissioners voted unanimously to select McDonough, who already had planned to leave the Fed, as chairman of the accounting oversight board.

“America’s markets, business community and entire economy are at a critical crossroads,” SEC chairman William Donaldson said at a news conference. “We have weathered the storm of scandal and continue to seek justice and pursue wrongdoing.”

Noting that the oversight board will play a major role in the effort to tighten corporate accountability, Donaldson said that McDonough’s “proven record of strong leadership, long commitment to public service and unquestioned integrity give all who invest in America’s public companies further reason to be confident in our efforts to demand honesty, transparency and integrity from all aspects of American business.”

The independent board, established by Congress last year in response to the wave of corporate accounting scandals, has had a rocky start. Its first chairman, former FBI Director William Webster, resigned in November in a flap over his watchdog role at a company now facing fraud accusations. The handling of Webster’s selection by then-SEC Chairman Harvey Pitt was a factor in Pitt’s pressured resignation the same month.

The SEC announced just last month that it had begun to accept nominations for a new permanent accounting oversight chairman, who will be paid $556,000 a year.

The New York Stock Exchange recently nominated McDonough as a new candidate to its board of directors.

McDonough was slated to join the board on Aug. 1, having earlier announced plans to retire from the Fed in July.

McDonough, appearing at the news conference with Donaldson, said he would not take the position on the NYSE board. He said it would take him until late next month to wind up his affairs at the central bank.

“The task before us is to restore the confidence of the American people and others around the world that the accounting statements issued by public companies … present a complete, true and timely report that can be relied on,” McDonough said. “It would be difficult to understate the importance to our country, particularly now, of maintaining its well-earned reputation as a safe and respected nation in which to do business.”

McDonough, 68, has chaired the Fed’s New York bank since July 1993, and is admired for his cool handling of financial crises. He was often touted as a possible successor to Federal Reserve chairman Alan Greenspan, whose current term ends in June 2004.

McDonough is a Democrat. Donaldson, the new SEC chairman, is a Republican appointed by President Bush.

McDonough played a key role in coordinating the government’s response to the disruptions on Wall Street following the September 2001 terrorist attacks and was instrumental in organizing the rescue by Wall Street investment banks of a giant U.S. investment fund, Long Term Capital Management, from collapse during the 1997-98 Asian currency crisis. Policymakers believed that a collapse of the hedge fund would have brought serious disruptions to the economic system.

The New York Fed serves as liaison to the country’s big money-center banks and Wall Street.

The president of the New York Fed generally serves as the vice chairman of the Federal Open Market Committee, which convenes eight times a year to set interest rate policies. The FOMC draws its members from Fed board members in Washington and the 12 regional bank presidents.

Some economists believe that McDonough may have decided to leave the Fed job because he sensed that as a Democrat his chances for the top job receded with a Republican Senate after the November elections.

The five-member SEC split bitterly last fall over the appointment of Webster as chairman of the oversight board, which was opposed by the two SEC commissioners who are Democrats.

Under the anti-fraud law setting up the board, which has the power to issue subpoenas and discipline auditors and will inspect accounting firms, the SEC must determine by April 26 if the board is fully operational.

The board’s temporary chairman is Charles Niemeier, who had been the chief accountant of the SEC’s enforcement division. The other members are Willis Gradison Jr., a former Republican congressman from Ohio; former SEC general counsel Daniel Goelzer; and Kayla Gillan, a former official of the California state pension fund.

Before going to the Federal Reserve, McDonough worked at banking company First Chicago Corp. for 22 years. He has previous government experience, having worked at the State Department from 1961-67. He was an adviser to the World Bank and the International Finance Corp. on their selection of outside auditors and also advised the president of the Inter-American Development Bank.

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