Balderdash! Push that tart into the water and take the board yourself!
-lol-
A legal audit.
[btw both left and right wing politicians agreeing?.. I am encouraged.. stricter accounting will hammer confidence for a while though imho...pb]
news.ft.com
In early May, senior White House aides held a closed-door meeting with a group of Democrats on the Senate banking committee. The White House wanted to swing support away from a tough accounting reform bill backed by the Democratic party's more left-leaning members, including Paul Sarbanes, the banking committee's chairman.
At first, they seemed to have succeeded. Mr Sarbanes, who had scheduled a debate on the bill in his committee in late May, was forced to withdraw. But in the past three weeks, there has been a sea change in Washington. Not only did Mr Sarbanes manage to bring his committee's Democrats back in line but when he reintroduced the bill with only minor changes last week, it passed by 17 to four votes.
At the same time, five blocks away at the Securities and Exchange Commission, Harvey Pitt, its chairman, was presenting his own accounting reform proposals. They went well beyond what had been expected from the man who, at his confirmation hearing a year ago, told the Senate he did not want the SEC to be "adversarial to the business it regulates".
Mr Pitt's newfound toughness results in no small measure from prodding by a White House that has changed its stance. A notable sign of this was a speech by Lawrence Lindsey, perhaps President George W. Bush's closest economic adviser, who two weeks ago singled out lax regulators as one factor behind the corporate excess of the late 1990s.
There is now almost the impression of a contest between the Bush administration and congressional Democrats over who can be tougher on accountants. "Some speculate we are competing with Congress to see who gets to solve our crisis of confidence," Mr Pitt insisted last week. "No such rivalry exists. The only important point is that the crisis is solved."
One reason is obvious: the recent wave of corporate scandals. Dennis Kozlowski, chief executive of Tyco, has been indicted for tax evasion; Samuel Waksal, former head of ImClone, has been arrested for insider trading; the accounting firm Andersen has been convicted of obstructing the SEC's Enron investigation; Joseph Nacchio has been forced out as chief executive of Qwest, itself the subject of an SEC accounting inquiry.
"The political centre of the debate has moved," says Gary Gensler, a former Treasury undersecretary. "When it started, it was largely confined to Enron. It moved because it can no longer be seen as one bad apple. Or even 10 bad apples."
There are other factors too. One is a backlash over earlier corporate lobbying on accounting reform. Mr Sarbanes says many of his colleagues were put off by lobbying efforts that were "over the top". A second factor is the fall in the Dow Jones Industrial Average, partly on fears that investors can no longer trust figures in corporate accounts.
Yet behind the rhetoric, the White House remains more cautious than the Senate Democrats. Mr Pitt's proposals, which the administration prefers, are less tough than the Sarbanes bill in several ways. Both envisage a new regulatory board but only Sarbanes would give the board power to set auditing standards. The bill would also bar accountancy firms from carrying out consulting work for audit clients and force a change in the partner in charge of auditing a particular company every five years.
Going into the reform debate, legislators and regulators faced a formidable troika of opponents: not only were the well funded accounting firms resisting wholesale change but there was also widespread opposition in corporate boardrooms and on Wall Street. Facing down any one of those entrenched interests would have been hard enough; fighting all three seemed impossible.
But senior executives in large corporations and leading New York financial institutions have begun to change their stance on accounting reform. Some now think they would gain from having a different legal framework. "It is enlightened self-interest," says one regulatory expert who has advised Senate Democrats on strategy. "Now they need reform that will get the 'Good Housekeeping' seal of approval."
For many involved in the debate, including Mr Sarbanes, the turning-point was a speech delivered at the National Press Club two weeks ago by Henry Paulson, chairman of Goldman Sachs, who said that US business was at an point of "low repute". Shortly after that, many of Mr Paulson's colleagues both in corporate management and on Wall Street began to fall into line.
In mid-May the Business Roundtable, comprising more than 150 chief executives of the US's largest companies, came out with reform proposals that fudged the issue of whether accountanting firms should perform consulting services for their audit clients. Only weeks later, the group embraced the Sarbanes bill, calling it a "positive step in our efforts towards reform".
Similarly, the Securities Industry Association, the main lobbying group for Wall Street, strongly endorsed an alternative accounting reform measure passed in April by the House of Representatives. It said that the House bill, which was less stringent than the Sarbanes bill, "delivers needed reforms without placing counter-productive restrictions that ultimately harm investors". But by last week the association also seemed to have switched its position, signalling at least some mild support for the Sarbanes bill.
These changes of stance have left the accounting industry largely on its own to fight against the tougher reforms. Alan Anderson, senior vice-president of the American Institute of Certified Public Accountants, the industry's main professional body, insists that the existing regulatory system "failed in one instance: Enron". The AICPA is lobbying supporters in Congress, such as Phil Gramm, the Republican senator, against measures in the Sarbanes bill such as a broad role for the new accounting regulatory board.
Some legislative change now appears inevitable. One person close to the Senate debate says that Mr Pitt could have seen off calls for stricter reforms by making his proposals at the start of this year; but the SEC is now seen as attempting to catch up with the Senate. "As much as [Mr Pitt] is trying, the issue is moving in front of him," says Mr Gensler. He predicts a strong vote in favour of the Sarbanes bill when it comes to the Senate floor next month.
If so, it will set up a potentially bruising confrontation between the White House and Congress later this year. Nick Calio, the White House's chief congressional liaison, said last week that the administration did not "think the Sarbanes bill is the answer". This suggests it is preparing to fight for something closer to Mr Pitt's proposals this autumn, when the House and Senate try to reach a compromise on their different bills.
Mr Pitt says that he will shelve his proposals if Congress acts before the year is out; and swift passage by the Senate could give Mr Sarbanes strong momentum against House Republicans and the Bush administration. The White House will have to play its hand carefully, given that it has already switched position once. It will also face political pressures: if it fails to agree a compromise with Senate Democrats, it could be accused to being soft on out-of-control corporations in the November mid-term elections.
At the moment, the White House is attempting to appear both tough and pragmatic. "My own view is this: There are some things that need to be hard and fast in the law and others that need to be subject to regulation," Paul O'Neill, Treasury secretary, said at the weekend. "We're anxious to see this finally resolved and get it on the president's desk so he can sign it and we can take away any uncertainty about whether people are going to be punished for doing these awful things." But if last week's activity in Washington is any guide, that uncertainty is going to last for a little while yet. |
