Charles R. Schwab has made a name for himself as a savvy champion of new technology. As head of the nation's largest discount brokerage, he invested heavily in the Internet during the mid-1990s, attracting 2.2 million online accounts valued at $174 billion by 1998.
At the same time, however, Schwab has lobbied fiercely to block a new system that would channel stock trades through a single electronic order book, where investors could take advantage of the best available prices. Similar systems have already been adopted by some European markets, and have been endorsed by financial heavy hitters like former Treasury Secretary Robert Rubin. But electronic ordering would bypass middlemen like Schwab, who profits from the difference between the prices bid and asked for stocks. David Pottruck, Schwab's co-chief executive, says the new system would be a disaster. "We think a marketplace of competitors is healthy," he told the Washington Post.
The company's lobbyists went to work, helping to orchestrate a congressional challenge that effectively killed the proposal. On March 30, Schwab executives held a fundraiser for Senator Rodney Grams (R-Minn.), the influential chairman of the securities subcommittee. The get-together raised at least $12,750 for Grams, with $4,000 coming from Schwab and his wife Helen. Less than a month later, the Minneapolis Star Tribune reported, the senator hosted a hearing on the new system. Opponents blasted the plan, and over the coming months it died a quiet death.
Frank Kelly, Schwab's head of government affairs, told reporters that the company supported Grams for another reason: the senator's support for privatizing portions of Social Security. "He's a free-market guy," said Kelly.
Schwab's support wasn't enough to save Grams, who lost his bid for re-election in November. But the broker has continued his campaign to divert public tax dollars to the private markets, calling for a frank discussion of Social Security "without the fear-mongering rhetoric that typically surrounds the issue." If George W. Bush's privatization plans are approved by Congress, says analyst Charles Gabriel of Prudential Securities, Schwab would benefit from the boom in trading volume.
Schwab has also been an outspoken advocate of increasing the amount of money that can be given tax-free to retirement accounts. With Bush in the White House, he is in a good position to exert his influence on such issues. Schwab personally gave $285,000 to the Republican National Committee last year, and National Security Advisor Condoleezza Rice recently served on his board of directors.
-- Michael Scherer
