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S.E.C. Chief
Hedges on Accounting Regulator
By STEPHEN LABATON
The NY Times, October 4, 2002
Under
accounting industry pressure, the choice of John H. Biggs, above, head of a
big pension plan, as chairman of a new industry oversight board is being
reconsidered by the S.E.C. chief, Harvey L. Pitt.
Industry executives and at least one prominent Republican lawmaker complained that the top choice, John H. Biggs, was too tough on the industry. After those complaints, Mr. Pitt, the chairman of the commission, informed Mr. Biggs this week in a telephone conversation that he was no longer certain he could support his candidacy to head the new accounting oversight board, according to several people who were briefed about the discussion. Only three weeks ago, Mr. Pitt privately assured Mr. Biggs that he would support him for the job. Mr. Biggs, a top executive at a large pension system, has been a leading voice for more stringent oversight of the accounting profession. His testimony this year helped to lay the groundwork for some of the provisions in the legislation signed into law two months ago that set up the new five-member accounting oversight board. He has been endorsed by people like Paul A. Volcker, a former Federal Reserve chairman, who was the commission's first choice for the post, and Arthur Levitt, Mr. Pitt's predecessor at the S.E.C. Mr. Biggs, the chairman and chief executive of the pension investment plan TIAA-CREF, testified this year before Congress that companies need to account more stringently for stock options granted to executives. He supports making companies rotate their auditors every few years. And he has been critical of accounting firms that perform consulting and auditing activities for the same client. The call from Mr. Pitt this week was a remarkable turnabout. At a lunch at TIAA-CREF offices in New York on Sept. 11, Mr. Pitt and Harvey J. Goldschmid, another commissioner, told Mr. Biggs that they would support him for the job if he wanted it, senior agency officials and Congressional aides briefed about the meeting said. At that time, Mr. Biggs indicated he was leaning toward taking it. Mr. Biggs then began consulting with the commissioners about who should be selected for the four other places on the new board. A few days after the lunch, Mr. Pitt publicly predicted that the new oversight board would be announced by the end of September, a month ahead of its deadline. But now, commission officials say, the selection process has been thrown into turmoil, as the accounting profession, which lost the battle in Congress two months ago over how it should be regulated, has turned to Mr. Pitt, one of its former top lawyers before he joined the government, to try to win the war. In response to an e-mail message outlining what aides and officials had said about the selection process, Mr. Pitt today issued a one-sentence statement through his spokeswoman, Christi Harlan. "The version of events you have described is untrue," his response said. Mr. Pitt declined a request to elaborate. The S.E.C. chairman now finds himself in an awkward political position, caught between some Republicans and accounting representatives who do not want Mr. Biggs, and some of his colleagues and lawmakers, who do. Congressional aides and current and former S.E.C. officials say the episode illustrates the continued political influence of the accounting profession despite its defeat on Capitol Hill on the legislation, sponsored by Senator Paul S. Sarbanes, Democrat of Maryland, establishing the oversight board. "It appears that the accounting firms, the Republicans and now Chairman Pitt are trying to circumvent the Sarbanes legislation by making certain that the board does not include any reform-minded persons," said Lynn E. Turner, a former chief accountant at the S.E.C. during the 1990's who has been advising officials on carrying out the new law. "If we lose Biggs, we lose a reform-minded board." Mr. Biggs, who was described today by friends as still willing to serve, said through a spokesman that the commission had not offered him the job and declined to comment further. Despite the conversation with Mr. Pitt, his candidacy is not dead; Mr. Biggs continues to enjoy widespread support among the other commissioners and a number of lawmakers. Mr. Goldschmid declined to comment about the selection process. Other officials said it was not clear whether Mr. Pitt's new stance was an effort to placate the accounting industry and its supporters in Congress or was simply a negotiating strategy to win the appointment of some candidates he prefers for the board who are opposed by other commissioners. As one example, officials say that Mr. Pitt strongly favors Donald J. Kirk, a Columbia Business School professor, for one board seat, while other commissioners think Mr. Kirk is too sympathetic to the industry. The new oversight board is viewed as an important instrument to calm the roiled stock markets and restore credibility to the oversight of a profession that has lost one of its major firms, Arthur Andersen, because of its criminal involvement in the Enron scandal, and which is still faced with a steady stream of accusations involving conflicts of interest. With Mr. Biggs winning support for the job from top officials, it looked as if the new board would be off to a strong start. But representatives from the accounting industry and its main lobbying organization, the American Institute of Certified Public Accountants, privately balked. They complained about the appointment to officials at the S.E.C. and in the Bush administration. They also approached Republican lawmakers, including Representative Michael G. Oxley, Republican of Ohio, the chairman of the House committee that has oversight responsibilities for the agency. Peggy Peterson, a spokeswoman for Mr. Oxley, said he "wanted a person of moderate views" to head the oversight board. She pointedly declined to comment when asked whether Mr. Oxley thought that Mr. Biggs was such a person or whether Mr. Oxley had lobbied against the appointment, as other officials said. Lynn Drake, communications director at the accountants' institute, did not respond to questions about its views on Mr. Biggs. Around the time Mr. Pitt informed Mr. Biggs that his support was waning, Mr. Pitt issued a carefully worded statement in response to an article in The New York Times about his selection that said the full S.E.C. had not yet formally decided on the composition of the new board. "The Securities and Exchange Commission has made no decision on the composition of the Public Company Accounting Oversight Board or offered the position of chairman to any person," Mr. Pitt's statement said. "Any report to the contrary is inaccurate. When the commission acting as a body makes a decision, it will make a public statement to that effect." The accounting profession has long loosely regulated itself. The new oversight board created by the legislation and named for Senator Sarbanes and Mr. Oxley, who sought a less restrictive bill, is supposed to set new ethics standards for the profession and to discipline errant auditors. How far it goes in establishing stringent oversight will largely be determined by the new board members to be appointed by the S.E.C.
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