The Securities and Exchange Commission appeared headed toward a partisan split today on the selection of the chairman of a new board to clean up the accounting industry, with William H. Webster, who has headed both the FBI and the CIA, likely to be appointed over Democratic objections, sources close to the process said.
White House Chief of Staff Andrew Card called Webster this week and asked him to accept the job, sources said.
The SEC's two Democratic commissioners, backed by investor advocates and Democratic congressional leaders, plan to vote for retirement fund executive John H. Biggs, who has advocated stricter regulation of corporate auditors, sources said.
The outcome seemed likely to be determined by the SEC's three Republican members, each of whom has past ties to the accounting industry. The situation was in flux last night.
SEC commissioner Paul S. Atkins, who holds one of the Republican seats and has supported Webster, said last night that he expected SEC Chairman Harvey L. Pitt or his staff to present a slate of five nominees for the five-member board, but he did not know who would appear on the list.
The commission had planned to vote in private, but Harvey J. Goldschmid, a Democratic member of the commission, objected that the decision shouldn't be made "in the shadows," a source close to the process said.
The appointment of the board is central to the government's efforts to restore investors' confidence in the stock markets after a series of corporate accounting scandals at companies such as Enron Corp. and WorldCom Inc. helped erase billions of dollars of shareholders' funds.
The oversight board has a mandate to discipline auditors of public companies, inspect accounting firms, and write new auditing rules.
Webster, 78, a former judge and prosecutor who now practices corporate law, would bring a famous name and reputation for probity to the board. He recently headed a commission that investigated internal security at the FBI after an agent was charged with spying for Russia.
Webster's experience heading the FBI and the CIA would make him eminently qualified for a job that calls for a tough cop, Atkins has said.
Former SEC chairman Richard Breeden agreed. "In its formative stage, the most important thing a chairman can do is set the culture and orientation of the board," said Breeden.
"He's not an accounting expert but he doesn't need to be," he said. "More important are his intelligence and integrity and his investigative ability. This is a chance to make sure that this board is something the accountants can never push around."
Others, however, say Webster's lack of experience in accounting and auditing make him less than ideal.
"I think that investor confidence would be restored more by somebody who is conspicuously knowledgeable about these issues," said William A. Niskanen, chairman of the libertarian Cato Institute, who served as acting chairman of President Ronald Reagan's Council of Economic Advisers.
"It's unfortunate that a public servant like Webster is being used as a pawn in a dangerous chess game by the Bush administration and Pitt," said Lynn E. Turner, who battled the accounting industry as the SEC's chief accountant under former chairman Arthur Levitt Jr.
"I would rather have as chairman of the board someone who has dealt with auditors in his background, and I don't know of anything that Judge Webster has done that would qualify him in that respect," said Peter J. Wallison, a former counsel to Reagan who is co-director of a project on deregulation at the American Enterprise Institute.
"If integrity is the issue, he's top of the line," but "I don't think we have a shortage of people with integrity," Wallison said.
Consumer advocates who endorsed Biggs, 66, said Webster's appointment would be a victory for Biggs's opponents in the accounting industry, something that would undermine the new board's credibility from the outset.
The Wall Street Journal editorial page yesterday encouraged Webster to turn down the position, saying that his appointment would be "political eyewash" and that he would be perceived as "Mr. Pitt's factotum."
The appointments have posed a test of Pitt's leadership at the SEC, and he had hoped to avoid a divisive outcome. In a speech on Sept. 20, Pitt said, "We will pick the five board members unanimously."
When Congress passed the Sarbanes-Oxley Act in July to protect investors and increase corporate accountability, it gave the SEC responsibility for appointing the oversight board in consultation with the Treasury secretary and the chairman of the Federal Reserve.
Card called Webster on Wednesday "to thank him for considering serving and also to express the high regard in which he is held," White House spokesman Claire Buchan said. Asked to respond to accounts that Card asked Webster to accept the job, Buchan replied, "That's probably fine."
Asked if Card made a similar call to any other candidate, Buchan said, "Not that I'm aware of."
Others under consideration for the board, sources say, include Kayla J. Gillan, former general counsel of the California Public Employees' Retirement system; Charles D. Niemeier, an official in the SEC's enforcement division; Daniel L. Goelzer, a former SEC general counsel; Texas Securities Commissioner Denise Voigt Crawford; and former federal judge Stanley Sporkin.
Democrats have accused Pitt of giving the accounting industry a veto over Biggs.
A source close to the process offered a different perspective, saying some commissioners were ruffled because they felt pressured to accept Biggs's appointment as a done deal.
The SEC then widened the search, causing Biggs's supporters to charge that Pitt was caving in to pressure from the accounting industry and its Republican allies. That criticism seems to have backfired, the source said.
What undid Biggs's candidacy, the source said, was the "outrage" Pitt and others felt over the agency being "demonized at the expense of investor confidence" and portrayed as "a tool of the accounting industry and its political cronies."
An SEC spokesman denied that the accounting industry, the White House or Republican lawmakers lobbied Pitt against Biggs or for Webster. "The only lobbying in behalf of or in opposition to either Biggs or Webster was from Democratic lawmakers supporting Biggs and attacking the judge," the spokesman said.
Webster associates said that if he accepted it would be out of a commitment to public service.
"He certainly didn't apply for the job," said William H. Danforth, former chancellor of Washington University in St. Louis, who said he discussed the board with Webster. "I don't think he'd thought about doing anything like that at all until he was approached."
Webster wanted Robert L. Virgil, formerly a professor of accounting and dean of the John M. Olin School of Business at Washington University, to join the board with him, sources said. But Virgil said yesterday that he could not take on the full-time commitment.
"I think anything Judge Webster takes on is going to be done as well as it possibly can and in the spirit of the legislation," Virgil said. "There will be people available who can help him out with the technical matters," Virgil added.