Outgoing SEC chairman Donaldson was “too heavy-handed.”

Outgoing Securities and Exchange Commission chairman William Donaldson was regarded as heavy-handed and overreactive by business groups and Republican SEC commissioners, according to a story in today’s New York Times. His successor will be Republican representative Chris Cox, whose industry experience includes and appears to be limited to being on the receiving end of a lawsuit filed by investors in a company represented by a law firm at which Cox once worked.

Donaldson replaced Harvey Pitt, who employed his lack of diplomatic and political skills to great effect by repeatedly embarrassing the Bush administration before they fired him in November of 2002.

Pitt came to the SEC from a lucrative private law practice with clients including the Big Five accounting firms (now the Big Four, after the Enron-inspired meltdown of Andersen Accounting).

Donaldson too is an industry insider, one of the founders of the brokerage giant Donaldson, Lufkin & Jenrette, and a former chairman of the New York Stock Exchange. But his status apparently did little to protect him from pressure exerted by industry lobbyists and associations, other supposedly independent officials such as Federal Reserve chairman Alan Greenspan, and the administration that appointed him.

In 2004, another Times story described the intense criticism leveled at Donaldson in connection with three investor-friendly proposals supported by the two Democratic SEC commissioners and Donaldson, but opposed by the two Republican commissioners, the Business Roundtable, the affected industries, Greenspan and the Bush administration.

In one, the agency plans to vote on a final rule to allow big shareholders in limited cases to propose their own candidates for board seats at troubled companies.

The commission plans to take up a second rule that would force the boards of mutual funds to be led by chairmen who are not involved in the management of the funds.

It also intends to propose a rule to give regulators greater access to the books and investment strategies of the largely secretive world of hedge funds – investment funds that have been bound by few rules or regulations on the longstanding assumption that only wealthy, experienced investors participate in them. The measure would require for the first time that hedge funds register with the S.E.C.

The proposals have provoked intense lobbying on several fronts.

“On each of the issues, the chairman is under immense political and industry pressure,” a senior commission official said. “The heaviest pressure has been coming on the proxy battle, where the views of an administration eager to court the chief executives during an election year have been made clear to the chairman.”

Of a counterproposal the Business Roundtable offered to the rule allowing large shareholders to nominate directors, one SEC official told the Times that it “creates a situation in which, if Bozo A gets voted down, the nominating committee can substitute him for Bozo B.”

Donaldson was able to implement two of those proposals in one form or another, but the shareholder board nominations fell to the “Bozo plan” advocates.

Cox, who chairs the House Homeland Security committee, is perhaps best known (to BTC News, at any rate) for his insistence that the Iraqis maintained banned weapon stockpiles and that they planned to attack the US by smuggling perfume bottles filled with chemical or biological weapons agents into the country.

On the regulatory front, the Times uses his litigation episode to suggest he is likely to be considerably more sympathetic to business concerns than was his predecessor.

In 1995, he was named a defendant in a lawsuit by investors as a result of legal work he did for an investment group in the 1980′s. The suit accused Mr. Cox, his former law firm and two former colleagues of misleading regulators and investors about the condition of a real estate investment fund. Mr. Cox, who denied that he had violated any laws, was eventually dropped from the lawsuit and the firm where he worked, Latham & Watkins, settled for an undisclosed amount.

He said his experience as a defendant had helped shape his views about investor lawsuits and led him “to sympathize with people who are victimized in these suits.” The bill Mr. Cox helped to write, the Private Securities Litigation Reform Act of 1995, was the only legislation to become law over a veto by President Bill Clinton.

During his career in the House, Mr. Cox has pressed the Financial Accounting Standards Board to delay new accounting rules that would eliminate more favorable treatment of some mergers. He has supported efforts to repeal the estate tax, the capital gains tax on savings and investment, and taxes on dividends.

In theory, the SEC is an independent agency of the government, and its chairman is expected — again in theory — to act independently. But the chairman serves at the pleasure of the president, and this president has not been pleased with either of his appointees to the position. The appointment of Chris Cox appears aimed to ensuring that when the SEC chairman is asked by the administration to roll over, their only problem will lie with getting him to stop.