Good Show, Mr. Donaldson

The first-year anniversary of William H. Donaldson as chairman of the Securities & Exchange Commission is at hand, and that means it's time to grade his performance. While there is room for improvement, especially in moving faster against the mutual-fund scandal, Donaldson clearly deserves high marks for reviving a deeply demoralized and fractious SEC.

At a time when the nation faces a stream of corporate and financial scandals, he has restored integrity and a sense of purpose to the financial industry's most important regulator.

The big surprise in Donaldson's short tenure is his activism. After the tumultuous two years of his predecessor, Harvey L. Pitt, the 72-year-old Donaldson was expected to calm the waters and move on. He has done much more than that.

Pitt put the SEC, which prides itself on independence, under a cloud because of his close ties to former clients. Pitt's choice for a new accounting oversight board chairman, William Webster, was forced to resign after it was revealed that he sat on the audit committee of a company facing accounting fraud charges.

Donaldson cleaned this mess up quickly. Unlike Pitt, he reached out to Democrats on the commission. He persuaded William J. McDonough, the tough and respected head of the New York Federal Reserve Bank who was then stepping down, to take the job as head of the accounting oversight board. The board was created by the Sarbanes-Oxley Act to set auditing standards and police the industry. Donaldson then pushed for funding to hire 1,000 more securities enforcers. He got them.

That was just a start. Donaldson used his bully pulpit to publicly castigate Morgan Stanley (MWD ) chief Philip J. Purcell for downplaying SEC allegations that his company had misled investors. Purcell apologized. Donaldson then came down hard on the New York Stock Exchange for paying its director, Richard A. Grasso, $139 million in compensation. Grasso was out in days. Donaldson followed up by calling for more independent board members at the NYSE, NASDAQ, and other exchanges. He favors regulating hedge funds so that they must open their books to the SEC. He is also backing better proxy access for shareholders to nominate board members.

True, Donaldson was slow to move on the mutual-fund scandal. New York State Attorney General Eliot Spitzer led the way. But Donaldson is now proposing rules that would force brokers to tell investors when they were paid to promote certain funds and require mutual funds to tell investors the fees they are being charged in dollars.

In his first year, Donaldson surprised everyone by being a true reformer. For that, he deserves an A.

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