Donaldson's appearance at Duke University, sponsored by the school's business and law faculties and the New York Stock Exchange Foundation, came a day after jurors convicted former Enron CEO Bernard Ebbers of nine counts of fraud, conspiracy and filing false statements.

During a 20-minute address to about 200 business leaders, Donaldson stressed the need for directors to maintain greater independence from the executives and companies they oversee.

Critics of corporate governance practices have criticized the sometimes cozy business ties between corporate directors and managers as serious conflicts of interest that can undercut the interest of investors.

"Directors must ensure that they remain the true stewards of corporate accountability ... without undue interference from the CEO or other members of management," Donaldson said. "Directors need to be able to look themselves in the mirror and say they're independent."

Donaldson, 73, took charge of the SEC in 2003 after a series of scandals that involved manipulation of accounting rules and auditing lapses. The former corporate and academic leader has since increased the agency's emphasis on internal reforms and strengthened its capacity to promote ethics and financial transparency in corporate America.

He touted new rules meant to increase the autonomy of corporate boards and called on directors to place more emphasis on long-term performance when deciding executive compensation. He said directors should curb their use of outside compensation consultants who have no responsibility to investors.

Many public companies, especially smaller ones, have complained that reforms such as the Sarbanes-Oxley Act, which Donaldson backs as a way to uncloud financial reporting, have gouged bottom lines because they require additional legal and accounting outlays to stay in compliance. Some experts say new disclosure rules have increased demand for legal and accounting services and may lead to some price gouging by outside consultants.

Donaldson noted that the SEC has set up an advisory committee to gather input from small public companies and may even adjust requirements to make them less burdensome.

He said the committee will focus on ways to protect investors while considering whether the costs of stronger disclosure rules "for smaller public companies are proportionate to the benefits."

-- Frank Norton