Why Choose a Non-Accountant to Head an Accounting Oversight Board?

Why would anyone name a non-accountant--former FBI Director William Webster, for example--to head an accounting-oversight panel? It's bizarre. The whole point of an accounting-oversight panel is to oversee accountants: you want someone who understands the issues.

It's hard to avoid the impression that SEC Chair Harvey Pitt had picked out a good chair for the accounting-oversight panel--John Biggs--and then been told by the White House and the Republicans and Congress, "No, no! We don't want somebody to oversee the accounting profession. We want somebody to overlook the accounting profession.

Why Webster would take this job--a job for which he is not qualified--remains a mystery to me.

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WSJ.com - SEC's Pitt Faces Public Battle Over Nominee for Audit Panel

By MICHAEL SCHROEDER
Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- The Securities and Exchange Commission is likely to approve William Webster as head of a new board overseeing the much-criticized accounting industry but only after a public, partisan fight that appears likely to bloody both the former FBI director and embattled SEC Chairman Harvey Pitt.

In an unusual move, Harvey Goldschmid, one of two Democrats on the five-member SEC, demanded an open meeting Friday afternoon to vote on the nominees. Mr. Goldschmid is expected to put forward John Biggs, head of TIAA-CREF, the big college teachers' pension fund, for board chairman.

Mr. Pitt, who is backing Mr. Webster, is likely to prevail by a vote of 3-2, but the public controversy is further tarnishing Mr. Pitt's image and reinforcing a widespread view in Washington that he is politically inept.

Prompted by several accounting scandals, Congress established the new Public Company Accounting Oversight Board to govern the standards used by public accountants as well as to examine public audit firms and to discipline accountants who violate securities laws. Formation of the board was part of the Sarbanes-Oxley Act, passed in July. The law requires the vote of a majority of the SEC commissioners to fill the accounting board seats. It also requires that the SEC consult with Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan in making the selections.

With Monday's deadline to name the board looming, the SEC's other Democrat, Roel Campos, is supporting Mr. Biggs, as are Democratic congressional leaders and former SEC Chairman Arthur Levitt. Much of the accounting industry and some Republican congressional leaders, however, oppose Mr. Biggs, who was regarded as tough on outside auditors who worked for TIAA-CREF.

Mr. Webster's lack of accounting expertise, and the controversy surrounding his selection, has heightened the importance of the other four appointments to the accounting board...

For those other spots, Mr. Pitt is expected to support Kayla Gillan, former general counsel of the California Public Employees' Retirement System; Charles Niemeier, currently chief accountant for the SEC's enforcement division; Daniel Goelzer, an accountant and former SEC general counsel who is now a partner at Baker & McKenzie; and Willis Gradison, a former GOP member of Congress from Ohio, former head of the Health Insurance Association of America and now a lobbyist at the Washington firm of Patton & Boggs.

While supporters of Mr. Biggs likely will be critical of any slate offered by Mr. Pitt, the proposed board members have strong credentials. Messrs. Niemeier and Goelzer, both accountants and lawyers with SEC experience, are seen as tough enforcers. Ms. Gillan has a reputation as an advocate for corporate-governance reforms at Calpers and Mr. Gradison brings strong Washington experience.

Mr. Webster, 78 years old, is a Washington fixture. Now at the law firm of Milbank, Tweed, Hadley & McCloy, he has served as director of the FBI, director of the Central Intelligence Agency, a federal judge and one of the federally appointed overseers of the Teamsters. He has the backing of the Fed's Mr. Greenspan, who meets with Mr. Webster for lunch every year to celebrate their common birthday, March 6. Mr. Webster called Mr. Greenspan Wednesday, a Fed spokesman said.

Mr. Webster met Tuesday with SEC commissioners and subsequently told Mr. Pitt that he was interested in the job. Annual salaries are expected to be in the $400,000 range.

The new accounting board was approved in an effort to restore confidence following Enron Corp.'s collapse as well as several accounting scandals and earnings restatements at other big corporations. With the backing of the Bush administration, the SEC early this year first proposed a private board intended to replace an ineffective self-policing entity that was funded by the accounting firms. That board, which was disbanded, had few weapons in its enforcement arsenal and little ability to impose penalties. In the Sarbanes-Oxley Act, lawmakers mandated for the first time a new accounting regulatory body that has the power to discipline auditors, examine accounting firms' auditing procedures and draw up new standards.

Earlier this month -- after former Fed Chairman Paul Volcker said he wasn't interested in the accounting job -- Mr. Biggs was the favorite for the post. He was seen as a strong reform-minded candidate because of the auditing policies he adopted at TIAA-CREF, such as rotating audit firms and banning audit firms from providing consulting services to its audit clients.

In recommending Mr. Webster for the board's top job, SEC Commissioner Paul Atkins, a Republican, has said he thinks the board chairman should have experience in law enforcement and running a big organization.

Mr. Pitt's critics assert that he initially supported Mr. Biggs, and then succumbed to pressure from GOP lawmakers and accountants who believe Mr. Biggs would impose accounting changes beyond those called for in the legislation. Mr. Pitt denies that.

Since he was named SEC chairman 15 months ago, Mr. Pitt has battled accusations that his past representation of big accounting firms presents so many conflicts of interest that he can't do the job well. Mr. Pitt, who has resisted calls from some lawmakers that he step down, has been criticized for a series of miscues, including meeting with some top executives of firms the SEC was investigating and his handling of the oversight board selection.

On Thursday, consumer groups intensified their push for Mr. Biggs, who they contend has more experience on accounting matters and called on Mr. Webster to withdraw from consideration and support his rival.

"It isn't clear that [Mr. Webster] has the detailed immersion in these issues that Biggs would bring to the chairmanship," said Barbara Roper, an official at the Consumer Federation of America.

Because of the controversy over the chairman's slot, there is a risk that the board will appear tainted. "Given that it's turned so political, investor groups will be watching the board with a microscope," said Lynn Turner, chief accountant under former SEC Chairman Levitt.

-- Cassell Bryan-Low contributed to this article.

Write to Michael Schroeder at mike.schroeder@wsj.com¹

Posted by DeLong at October 25, 2002 05:15 PM | Trackback