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SEC Chairman Suggests Self-Regulation to Nonprofits

November 17, 2004

Informal self-regulation, such as endorsing audited financial statements and best practices in nonprofit governance, is the best first step to maintaining and increasing public trust, according to William Donaldson, chairman of the Securites and Exchange Commission (SEC). Donaldson made those comments in a speech to members of Independent Sector during the nonprofit group’s annual meeting.

The proactive response to recent questions surrounding nonprofit governance and alleged misdeeds by charitable groups is one method of avoiding forced legislative and regulatory oversight of the industry, said Donaldson. By becoming involved in the solution now, the opportunity for mutually agreeable solutions is much greater.

Guidelines already developed by the nonprofit sector were mentioned as models upon which further momentum can be built. An example of such guidance includes NACUBO’s Advisory Report 2003-3 The Sarbanes-Oxley Act of 2002: Recommedations for Higher Education.

Donaldson cited the relative success of the for-profit sector’s self governance with the example of the National Association of Securities Dealers. NASD writes and enforces rules among its own members. The SEC has authority to accept or reject the rules developed by NASD, but the SEC is not directly involved in writing the rules for the industry.

The full transcript of Donaldson’s speech is available on the SEC Web site.