What was to have been an affirmation of national resolve to finally get tough with lax and misleading corporate bookkeeping dissolved into partisan bickering Friday at the Securities and Exchange Commission over the selection of a chairman for the new accounting oversight board.
In a city absorbed by the search for a sniper and elated over the arrest of two suspects, the designation of William H. Webster, a former federal judge and director of both the CIA and the FBI, might have passed unnoticed. But his ascension capped a scrum involving industry groups, corporate reformers, members of Congress, and the White House. The 3 to 2 vote along party lines by the normally consensus-minded commission became a referendum on the leadership of Chairman Harvey L. Pitt, who had all but offered the post to John H. Biggs, manager of a giant union pension fund and critic of the accounting industry. But Pitt's change of heart may have had more to do with his dislike of the campaign waged behind the scenes and in the press by Biggs and his allies than with the opposition from the industry he used to represent as a private lawyer and its political allies.
"I am beholden to no one," an angry Pitt declared at the open meeting demanded by the SEC's other Harvey, Commissioner Harvey J. Goldschmid, who called the selection process "inept" and warned that the new board would start its work under a "dark and ugly cloud." Maryland Democrat Paul S. Sarbanes, the Senate Banking Committee chairman whose name adorns the legislation creating the commission, called for Pitt's resignation -- joining numerous other Democrats and Sen. John McCain (R-Ariz.).
Unlike most Washington spats, this one over how tough to get with accountants and accounting rules has real consequences for the markets, as some of the week's other news made clear. Three big corporations -- AOL Time Warner, Tyco International and Bristol-Myers Squibb -- admitted overstating their revenue and profit in previous reports. Although the strain of aggressive accounting at each company was different in each case, all had been reviewed by accountants who, under the lax regulation of the time, had little to lose and much to gain by going along.
The new oversight board is charged with changing that calculus by tightening the accounting rules, limiting accountants' potential conflicts of interest and increasing the penalties for malpractice. How much the board will change that calculus will depend less on Webster's ability to master the arcane nuances of accountancy than on how aggressively he insists that accountants speak the simple truth.