By Carrie Johnson
Washington Post Staff Writer
Wednesday, March 28, 2007
For thousands of investors and executives at publicly traded companies, Conrad W. Hewitt may be one of the most important Washington civil servants they've never heard of.
The chief accounting guru at the Securities and Exchange Commission, Hewitt stands at the center of numerous burning policy debates -- from how far to cut back on corporate reforms imposed after the Enron debacle to which executives are to get punished for manipulating their companies' numbers.
Hewitt, 70, came to the job last August in the twilight of a long career as a California banking regulator and a partner at Ernst & Young, one of the nation's four largest accounting firms. "I thought it was a great opportunity to cap my career," he said.
But the major influence on Hewitt's thinking may be his service as a board member at 10 companies, many of which spent millions of dollars complying with costly provisions in the 2002 Sarbanes-Oxley Act which imposed financial and governance strictures on businesses and their accountants. One of his associates back then called the process "an exercise in futility."
Now Hewitt and SEC Chairman Christopher Cox are in the midst of an intense effort to streamline those regulations, digesting scores of complaints from business and counterattacks from investor advocates who warn that too much rollback would mean a return to the era of Enron and WorldCom.
After only seven months at the helm, Hewitt and his impact are difficult to measure because the initiatives he is pursuing will take years to mature. His most important agenda item is receiving mixed reviews. Business groups and lawmakers for the most part have welcomed a plan to shear back a thicket of rules that required companies to document their financial controls in an effort to prevent fraud and mistakes. But certain consumer advocates have criticized the plan as weak.
"The proposal they put out there is badly in need of strengthening," said Barbara Roper, director of investor protection at the Consumer Federation of America.
More than most recent holders of the job, Hewitt polished a reputation for being friendly to business: first as the manager of several Ernst & Young offices on the West Coast, where he helped forge relationships with such key clients as Bank of America, and then as a banking regulator who helped slash duplicative state rules in the late 1990s.
"He's a businessman," said Terry Robinson, president and chief executive of North Bay Bancorp, a bank holding company where Hewitt served on the board until his SEC appointment last August. "He's been a regulator, but he's a businessman."
The previous occupant of the chief accountant's office, Donald T. Nicolaisen, was a veteran partner at PricewaterhouseCoopers who made a name for himself by mastering accounting policies for sophisticated financial contracts known as derivatives. Nicolaisen had worked in the prestigious national office of his former accounting firm, where he fielded difficult technical and ethics questions. By contrast, Hewitt spent his last years at Ernst managing personnel and ensuring that clients were satisfied.
Dennis R. Beresford, a professor at the University of Georgia and one of Hewitt's first supervisors in the 1960s, said, "Lots of people can do accounting, but if you can't allocate your resources properly and keep clients reasonably happy with your services, it's hard to make any money."
Former agency officials say Nicolaisen and Michael H. Sutton, the SEC's chief accountant in the early years of the Clinton administration, commanded respect across the agency, from line employees to the five commissioners who set the policy agenda. Lynn E. Turner, who served as chief accountant for last three years of the Clinton era, used the job as a bully pulpit to communicate his concerns about conflicts of interest to the business and accounting communities. So far, Hewitt has been less visible inside and outside the agency, observers say.
Hewitt's public speaking style resembles the direct, rhetoric-free patter of the Air Force captain he once was, not the policymaker who deftly balances competing interests.
Hewitt rankled investor groups and even officials inside his agency this year when he appeared to support granting accountants greater legal protection from shareholder lawsuits. He later asserted that only Congress had the authority to impose monetary caps on such cases. "Congress needs to take a hard look" at reforms, Hewitt said.
Beresford counts the flap over the litigation issue as a lesson learned. "I suspect he'll be more careful with things over time, the professor said, "which is unfortunate because you want people to say what they mean."
What Hewitt says matters. He controls the work of more than 60 accountants, oversees pressing questions posed by businesses and their auditors and passes judgment on the accounting that underlies the SEC's cases against executives and companies. His deputies, former Deloitte & Touche partner James Kroeker, former University of Southern California professor Zoe-Vonna Palmrose, and Joseph B. Ucuzoglu, a former senior manager at Deloitte & Touche, handle a substantial amount of the technical details.
Broad efforts to make U.S. accounting policies compatible with foreign counterparts, as well as scores of enforcement cases that involve executives tampering with stock option dates, are also part of their agenda.
Historically, the chief accountant also speaks to students and trade groups around the country, meets with supplicants on various issues and oversees the Public Company Accounting Oversight Board, which regulates the audit industry.
Hewitt, his friends say, leaves little to chance. When he remarried two years ago he faxed a proposed wedding toast to his best man, saying only that he thought it would help.
He's approaching his job as a regulator in the same way. Asked whether he intends to stay at the SEC through the presidential election in 2008, Hewitt said with a smile, "I plan to be here. It'll take me that long to get everything halfway done."