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William H. Donaldson, who made an early fortune as co-founder of the innovative securities firm Donaldson, Lufkin & Jenrette and later pushed for tougher 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, at the age of 93.
The cause was leukemia, his son Adam said.
Mr. Donaldson also briefly served as undersecretary of state under Henry A. Kissinger, ran the New York Stock Exchange and was chief executive of the insurance company Aetna Inc.
In 1975, he was named the founding dean of Yale University’s School of Organization and Management, now known as the School of Management, whose mission to train leaders for both business and government was exemplified by his career at Zig Zag.
Mr. Donaldson was just 28 years old and one year into Harvard Business School in 1959 when he joined with two friends, Dan Lufkin and Richard Jenrette, to found a securities firm bearing their names and known as DLJ.
The three young men noticed that mutual funds and other institutional investors accounted for a larger share of stock market trading. They believed that these professional investors would welcome more sophisticated research than that typically produced on Wall Street. DLJ focused on stocks of smaller emerging companies rather than slower-growing blue chips.
Donaldson served as CEO as the firm rapidly expanded and diversified into fund management during the “go-go” stock market boom of the 1960s. In 1970, DLJ upended a Wall Street tradition by offering its shares to the public. Other securities firms soon followed, opening up a much-needed new source of capital for the private partnerships that had long dominated Wall Street.
In 1973, The New York Times called Donaldson “one of Wall Street’s most famous magicians.”
That same year, feeling restless, he left for Washington to work for Kissinger at the State Department. He resigned from that post about eight months later, finding himself bogged down in bureaucratic minutiae, lacking influence over policy and rarely in direct contact with the globetrotting secretary of state.
But his public service was not over. He was briefly an advisor to Vice President Nelson A. Rockefeller in the mid-1970s. President George W. Bush appointed him chairman of the SEC in 2003.
At the time the commission was criticized for appearing too lax in its role as a watchdog. After the stock market boom of the late 1990s, Americans were stunned and angry to learn that energy company Enron and telecommunications provider WorldCom had used accounting tricks to inflate reported profits. Congress was determined to crack down and authorized a larger budget for the SEC
Donaldson, a moderate Republican, often sided with Democratic commissioners rather than those of his own party when voting on new regulations. Republicans and business groups have said that some of his ideas, such as imposing tougher regulation on hedge funds, would raise costs unnecessarily. Faced with this reaction from the commissioners, he announced his resignation in June 2005, just over two years after his arrival.
William Henry Donaldson was born June 2, 1931 in Buffalo. His father, Eames Donaldson, a Yale-trained engineer, co-founded a machine tool company that collapsed during the Depression, then took “a series of not very profitable jobs,” his son wrote in the memoir of 2018, “Entrepreneurial Leader: A Lifetime of Adventures in Business, Education and Government. His mother, Guida (Marx) Donaldson, ran the household. Mr. Donaldson described her as sociable but plagued by periods of depression.
William Donaldson was a scholarship student at the private Nichols School in Buffalo, where he played varsity hockey. He founded a short-lived humor magazine, Read ‘Em and Grin, using mostly jokes from other sources and selling ads to local merchants.
As a teenager he had also shown entrepreneurial instincts, creating the grandiose United Enterprises to provide labor to students for tasks such as painting houses and maintaining lawns.
As an undergraduate at Yale, Donaldson majored in American studies and befriended members of the Bush political clan. He was business editor of the Yale Daily News and a member of the exclusive Skull and Bones secret society. After graduation, he enlisted in the Marine Corps, earned a commission as a second lieutenant, and served in various locations throughout the United States and Japan.
“When I left the service I was convinced that helicopters were the wave of the future and that everyone would have one in their garage,” he said in a 2002 oral history for Harvard Business School. After failing to find a management job in the helicopter industry, he joined the Wall Street firm GH Walker & Company, run by members of 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. He returned to G. H. Walker after completing his MBA in 1958. He soon began talking with two other Harvard Business School graduates, Mr. Lufkin and Mr. Jenrette, about the idea of starting his own company.
Once DLJ became operational, Donaldson wrote, the founders learned to research the stock market with an “investigative mindset.” Instead of just talking to executives, they sought input from customers, suppliers and others.
The Equitable Life Assurance Society acquired DLJ in 1985 for about $430 million and was later absorbed by Credit Suisse.
In the mid-1970s, Donaldson attempted to purchase the New York Post, only to see it sold to Rupert Murdoch. Kingman Brewster Jr., then president of Yale, provided an alternative by recruiting Mr. Donaldson to create a management school. He was principal until 1980, promoting the idea of combining public service with an entrepreneurial career.
“I think the lines between the private and public sectors are becoming more and more blurred,” he told the Times in 1975. “Business is having to interface more and more with government, and government is getting more and more involved with business. It’s just a fact, and not necessarily a bad one.
In the early 1980s he created an investment firm, Donaldson Enterprises, and in 1982 he briefly campaigned to become the Republican candidate for governor of New York. There isn’t, especially on social issues,” he told the Journal News of White Plains, New York, in 2005.
The New York Stock Exchange, facing stiffer competition and declining revenue, recruited him as president, starting in January 1991. During his tenure of about four and a half years, the exchange reduced transaction costs and attracted some exchanges by rivals.
Mr. Donaldson was a director of Aetna in the late 1990s, when the company ran into trouble after spending a fortune on acquisitions. In a February 2000 management reorganization, Aetna’s board of directors named him president and chief executive officer. He pleased shareholders with the sale of Aetna’s international and financial services businesses. He was paid about $19 million in salary, bonus and stock options (about $35 million in today’s money) for spending about 13 months working on the Aetna audit.
“My compensation was strongly aligned with shareholder interests,” Donaldson said when asked about such payments during his SEC confirmation hearing before the Senate Banking Committee.
His first wife, Evan (Burger) Donaldson, who ran a nonprofit adoption service, died in 1994. The following year he married Jane Phillips, former director of admissions and internships at Yale’s management school. 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 hamlet of Waccabuc, part of Lewisboro, Westchester.
In the Harvard Business School oral history, Donaldson offered advice to all types of leaders: “Why are we doing it this way?” he said, is a question that can be asked about anything.
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