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Doubts Grow on Bush's Resolve for Business Reform

Reported secrecy by SEC Chairman Pitt about his choice to lead an accounting board is the latest in a series of missteps.

November 01, 2002|Peter G. Gosselin | Times Staff Writer

WASHINGTON — The administration's latest misstep in handling America's corporate crisis has convinced many people on both sides of the political divide that President Bush does not take the business scandals of the last year all that seriously.

Revelations that Bush's Securities and Exchange Commission chairman, Harvey L. Pitt, failed to disclose crucial information about his top nominee for a new accounting oversight board -- even to fellow commissioners -- is the latest in a series of fumbles, misstatements and false starts by the administration on the corporate scandal issue.

Since the start of the year, the president and key aides have suggested there is a danger of going too far in curbing accounting gimmicks and excessive corporate compensation, and they appear to have embraced legislative and regulatory changes only after new disclosures of malfeasance have forced their hand.

"The administration has not stepped up to the plate," said William A. Niskanen, chairman of the libertarian Cato Institute in Washington. "They've never made it clear what they themselves wanted."

"The president doesn't seem to see the seriousness of the problems that almost every business leader of both parties sees," said Jay Lorsch, a corporate-governance expert at Harvard Business School.

Neither the president nor Republican candidates are likely to pay a political price for the problem in next week's congressional elections. Polls show that only a tiny fraction of voters rank corporate reform as a big issue.

But at least one Washington veteran said the scandals and the administration's uncertain handling of them could spell trouble for Bush in the next few years.

"This issue has the potential to become a much bigger political headache for Republicans in general and this administration in particular," said Norman J. Ornstein of the generally conservative American Enterprise Institute in Washington.

More immediately, the administration's fumble in creating the accounting board threatens to tarnish Washington's most high-profile attempt to restore investor confidence and bolster financial markets by imposing stiff rules on corporate auditors, directors and executives.

The board was created by Congress in July to police accountants after revelations they had blessed financial statements that wildly inflated the profits of companies such as Enron Corp., WorldCom Inc., Global Crossing Ltd. and Tyco International Ltd. It is one of the mainstays of the only major piece of legislation to emerge from the debacle.

Pitt has been embroiled in almost continuous controversy since arriving in Washington. As a lawyer, he represented accounting industry lobbyists and top accounting firms such as Arthur Andersen, which was implicated in the Enron debacle, and has been accused of giving his former clients special access to him as SEC chairman.

The latest blowup occurred Thursday, when it was revealed that Pitt's choice to lead the new accounting board, former FBI and CIA Director William H. Webster, told the SEC chairman he had recently headed the audit committee of a company accused of defrauding investors. Webster also reportedly said that as audit committee chairman, he had agreed to the removal of the firm's auditors after the auditors said they uncovered serious accounting problems.

Pitt, whose raison d'etre as SEC chairman is to ensure full disclosure by publicly held companies, failed to disclose to fellow SEC commissioners what Webster had told him before the panel voted 3 to 2 on Oct. 25 to approve Webster's appointment.

The new blowup comes atop an earlier one that Pitt sparked when he appeared to endorse former retirement fund manager John H. Biggs for the accounting board's chairmanship, then -- apparently under accounting industry and White House pressure -- backed away from the tough-minded Biggs in favor of Webster.

A White House spokeswoman, Clare Buchan, asserted Thursday that Bush has been at the forefront of corporate reform efforts. But the president's position on key reform issues has been cloudy and uncertain at critical moments.

He spent much of the year, for example, suggesting he wanted some of the most stringent elements of the reform bill advanced by Sen. Paul S. Sarbanes (D-Md.) removed or toned down. As late as a July 9 speech on Wall Street, he refused to back the bill, and only did so after telecom giant WorldCom filed for bankruptcy protection later that month.

Bush unleashed a torrent of populist rhetoric during his Wall Street speech and called for a doubling of maximum sentences for corporate misdeeds.

But he had taken much of the sting out of his remarks in an interview the day before, when, asked about his own conduct as an executive of Harken Energy Corp. in the early 1990s, he said, "In the corporate world, sometimes things aren't exactly black and white."

Hedging like this could prove politically dangerous for an administration with more than its share of former executives and lawyers from several of the most controversial companies.

Besides Pitt, there is Vice President Dick Cheney, who faces a lawsuit alleging that he and Halliburton Co. defrauded investors through aggressive accounting when Cheney was chief executive of the Texas oil services and construction firm.

There is Army Secretary Thomas E. White, who as vice chairman of Enron Energy Services was at the center of California's power crisis in 2000-01. And there is Bush economic advisor Lawrence B. Lindsey, who was an advisor to Enron before joining the administration.

"Up to this point, the corporate scandals have been the administration's Achilles' heel," Harvard's Lorsch said. "They just don't get it."

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