William H. Donaldson, who made his fortune early as a co-founder of the groundbreaking securities firm Donaldson, Lufkin & Jenrette and later pushed for stronger financial regulation as chairman of the Securities and Exchange Commission in the wake of the Enron and WorldCom accounting scandals, died Wednesday at his home in Westchester County, New York. He was 93.
The cause was leukemia, said his son Adam.
Mr. Donaldson served briefly as undersecretary of state in President Henry A. Kissinger's administration, headed the New York Stock Exchange and was chief executive officer of the insurance company Aetna Corp.
In 1975, he was appointed the first dean of the Yale School of Organization and Management (now known as the School of Management), whose mission to prepare leaders for both business and government is epitomized by his own checkered career.
In 1959, at age 28 and in his first year after graduating from Harvard Business School, Donaldson founded a securities firm named after them, DLJ, with friends Dan Lufkin and Richard Jenrette.
The three young men realized that mutual funds and other institutional investors accounted for the majority of stock market trading. They reasoned that these professional investors would appreciate more sophisticated research than was common on Wall Street. DLJ focused on stocks of small, promising companies rather than slow-growing blue-chip companies.
Donaldson served as chief executive officer as the company expanded rapidly during the stock market boom of the 1960s and diversified into fund management. In 1970, DLJ upended Wall Street tradition by offering its stock to the public. Other brokerages soon followed suit, opening up much-needed new sources of capital to the private partnerships that had long dominated Wall Street.
In 1973, The New York Times called Donaldson “one of Wall Street's most famous geniuses.”
That same year, feeling restless, he flew to Washington to work under Mr. Kissinger at the State Department, but found himself bogged down in bureaucratic minutiae, lacking influence over policy and with little direct contact with a globe-trotting secretary of state, and quit after about eight months.
But his public career didn't end there: in the mid-1970s, he briefly served as an adviser to Vice President Nelson A. Rockefeller, and in 2003, he was appointed chairman of the SEC by President George W. Bush.
At the time, the SEC was accused of being too lax in its watchdog role: After the stock market boom of the late 1990s, Americans were shocked and outraged to learn that energy company Enron and communications-services provider WorldCom had used accounting fraud to inflate their reported profits. Congress decided to crack down, and increased the SEC's budget.
Mr. Donaldson, a moderate Republican, often sided with Democratic commissioners rather than with his own party when voting for new regulations. Republicans and industry groups said some of his ideas, such as tougher regulations for hedge funds, would unnecessarily raise costs. Facing opposition from commissioners, he announced his resignation in June 2005, just over two years after taking the job.
William Henry Donaldson was born in Buffalo on June 2, 1931. His father, Eames Donaldson, a Yale-educated engineer, co-founded a machine-tool company that went bankrupt during the Great Depression and then “took a few less lucrative jobs,” he wrote in his 2018 memoir, “Entrepreneurial Leader: A Lifetime Adventure in Business, Education and Government.” His mother, Guida (Marcus) Donaldson, managed the family finances. Donaldson said she was outgoing but suffered from bouts of depression.
William Donaldson was a scholarship student at the private Nichols School in Buffalo, where he played varsity hockey, and founded a short-lived humor magazine, Read 'Em and Grin, which featured jokes, mostly plagiarized from other sources, and sold advertising to local businesses.
He also demonstrated his entrepreneurial spirit as a teenager, founding the grandiosely named United Enterprises to provide student labor for jobs like house painting and lawn care.
While at Yale, Donaldson majored in American Studies and developed close ties with the Bush family of politicians. He served as business manager for the Yale Daily News and was a member of the secret society Skull and Bones. After graduation, he enlisted in the Marines, receiving a commission as a second lieutenant and serving in various locations in the United States and Japan.
“When I got out of the military, I was convinced that helicopters were the wave of the future and that everyone was going to have one in their garage,” he said during an oral history at Harvard Business School in 2002. After failing to get a management position in the helicopter industry, he joined G.H. Walker & Company, a Wall Street firm run by the Bush family.
About a year later, he enrolled at Harvard Business School, where he found that case studies of business problems honed his ability to ask probing questions. After earning his MBA in 1958, he returned to GH Walker. Soon he was in discussions with fellow Harvard Business School graduates Messrs. Lufkin and Jenrette about starting their own company.
Donaldson writes that soon after DLJ began operations, its founders taught themselves to approach the stock market with an “investigative mindset”: They didn't just talk to management, they sought input from customers, suppliers and others.
Equitable Life Insurance Corporation acquired DLJ in 1985 for approximately $430 million and was subsequently absorbed by Credit Suisse.
In the mid-1970s, Mr. Donaldson tried to buy the New York Post, which was eventually sold to Rupert Murdoch. Kingman Brewster Jr., then president of Yale, invited Mr. Donaldson to create a business school to offer an alternative. He served as dean until 1980, promoting the idea of ​​combining public service with a business career.
“I think the line between the private and public sectors is becoming more and more blurred,” he told The Times in 1975. “Corporations are having to deal more and more with government, and government is getting more and more involved with business. This is just a fact of life, and it's not necessarily a bad thing.”
In the early 1980s, he founded an investment firm, Donaldson Enterprises, and briefly campaigned for the Republican nomination for governor of New York in 1982. “At that time, the Republican Party was moving increasingly far to the right, and I wasn't there, especially on social issues,” he told The Journal-News in White Plains, New York, in 2005.
Facing increasing competition and declining revenues, the New York Stock Exchange brought him on as chairman in January 1991. During his roughly four-and-a-half-year tenure, the exchange cut trading costs and lured back some business from rivals.
Donaldson served on Aetna's board of directors in the late 1990s, when the company was struggling after spending billions on acquisitions. In a management shakeup in February 2000, Aetna's board appointed him chairman and chief executive officer. He delighted shareholders with the sale of Aetna's international and financial-services businesses. He spent about 13 months turning Aetna around, receiving about $19 million in salary, bonuses and stock options (about $35 million in today's value).
Asked about those payments during his SEC confirmation hearing before the Senate Banking Committee, Donaldson said his “compensation was strongly aligned with the interests of shareholders.”
His first wife, Evan (Berger) Donaldson, headed a nonprofit adoption service and died in 1994. The following year he married Jane Phillips, who was director of admissions and placement at the Yale School of Management. She survives him. In addition to his son, Adam, he is survived by two other children, Matthew and Kimberly Donaldson, and three grandchildren. He lived in the village of Waccabuck, part of Lewisboro in Westchester.
In an oral history for Harvard Business School, Donaldson offered a tip for leaders of all kinds: “Why are we doing it this way?” is a question you can ask about anything, he said.
