At The Sec, A Deft Crusader For ReformMichael Schroeder
Arthur Levitt Jr. isn't your typical Securities & Exchange Commission chairman. After an Aug. 8 meeting with Berkshire Hathaway Inc. Chairman Warren E. Buffett at his Omaha headquarters, Levitt waved off Buffett's offer to telephone a taxicab for the airport trip. Levitt and an aide figured they would hail a cab. But Omaha isn't Washington or New York--empty cabs don't fill the streets. So with time to kill before his flight, the 63-year-old Levitt walked the eight miles to Eppley Field airport. "I viewed it as an adventure," Levitt says.
The SEC chief is nothing if not a free spirit. And he has proved it often during his 18 months on the job. Despite his background as a liberal New York Democrat, he's no regulatory activist. And while he worked for decades on Wall Street, he doesn't hesitate to attack some of the securities industry's fundamental tenets, especially its conflict-of-interest-ridden system for compensating brokers. "Consumer protection is my mission and passion," he declares.
Levitt's pro-investor stance was shaped by his Depression-era parents: Arthur Sr., New York State comptroller for 24 years, and Dorothy, a career school teacher. As comptroller, Levitt's father managed one of the biggest pension systems in the country, and Levitt says his parents were "obsessive" about safely managing retirement savings.
That lesson guided Levitt's career in the securities industry. As a broker during the 1960s, he was viewed as a skillful salesman but a straight shooter. He earned the nickname "Granny" for his sense of propriety. As president of Hayden Stone Inc., which became Shearson Lehman Brothers Inc., he advocated a salary-and-commission system for brokers instead of just commissions. But the notion went nowhere. "My colleagues at the firm thought it was a haywire idea," he says.
Today, Levitt has a bully pulpit for preaching his reform gospel. He's wary of new rules but hopeful that his powers of persuasion and ability to build consensus can produce voluntary change. He no longer favors a system that blends salaries and commissions. Industry leaders have persuaded him that imposing fixed salaries on brokerage firms could drive many of them out of business in down markets. Now, Levitt favors bonuses based on portfolio performance and still wants to abolish some of what he considers the worst pay abuses, such as excessively high commissions for sales of in-house products. "Arthur wants a better break for individual investors but not at the expense of straitjacketing the industry," says Harvard business school professor Samuel L. Hayes.
It's not clear, however, whether his drive to overhaul compensation schemes will fare any better than some of his other crusades, such as a plan to fund the SEC's budget with fees on such things as stock registrations. The House passed such a bill last year with strong support from Democrats. But it died in the Senate because of opposition from Senator Phil Gramm (R-Tex.), who now chairs the subcommittee that oversees the SEC. Gramm wanted to maintain congressional control over SEC revenues. Levitt's intense lobbying alienated some senators, who branded him a "whiner," says an SEC official. "It was a no-win situation that Arthur never should have gotten involved with," he adds.
But on most issues, Levitt is proving that he is deft enough to maneuver in a Republican-dominated Washington. His emphasis on consumer education, investor self-reliance, and reducing regulatory burdens--especially for small business--plays well with the GOP. And since the election, the SEC has taken the unprecedented step of telling a court that a shareholder suit against Cooper Cos. had no merit. That decision dovetails with a provision in the Republicans' Contract With America that calls for limits on frivolous lawsuits by shareholders. "Levitt read the tea leaves early on," declares Barry Siegel, executive director of the Committee of Publicly Owned Companies, which lobbies for midsize firms.
In this hostile climate, Levitt, a consummate schmoozer, will push his agenda by forging compromises. He'll continue to meet not only with lawmakers but also with Wall Street officials and corporate chieftains. He'll be using up shoe leather in more ways than one. "I hope to walk to two or three more airports," he says with a smile.