Spitting out Pitt?

A growing bipartisan movement is demanding the head of SEC chief Harvey Pitt.

By Anthony York

Jul 9, 2002 | With President George W. Bush set to deliver a televised lecture on good corporate citizenship Tuesday night, sentiment is growing among both Democrats and Republicans on Capitol Hill that reform of the accounting industry in the aftermath of Enron and WorldCom may require the administration to replace Harvey Pitt, chairman of the U.S. Securities and Exchange Commission.

Before being tapped by Bush last year to head the SEC, Pitt was a high-powered attorney and lobbyist whose clients included Arthur Andersen, Merrill Lynch, Charles Schwab and America Online. While at the firm, Pitt lobbied hard against a proposal by his predecessor, Arthur Levitt, to prohibit auditing firms from serving as consultants for their auditing clients.

Now, Pitt has gone from an advocate for self-regulation in the accounting industry to the man in charge of the government agency that is supposed to regulate publicly traded businesses. But after a series of highly public corporate meltdowns in recent months -- many related to dubious bookkeeping practices -- critics say Pitts' ties to the industry appear to be so close that he cannot lead the reform effort needed to restore the trust of investors and the public.

Pitt has been "a huge disappointment," Senate Majority Leader Tom Daschle, D-S.D., said on CBS's "Face The Nation" Sunday. "I have to say at this point that we could do a lot better than Harvey Pitt in that position today. That cozy, permissive relationship [between the SEC and big business] has to end, and he in large measure has orchestrated that over the last 18 months."

Sen. John McCain, R-Ariz., the ranking Republican on the Senate Commerce Committee, chimed in with a New York Times Op-Ed piece Monday. "Congress and the president ... should ask for the resignation of Harvey Pitt," McCain wrote. "While Mr. Pitt may be a fine man, he has appeared slow and tepid in addressing accounting abuses, and concerns remain that he has not distanced himself enough from former clients."

But Daschle and McCain are not exactly high on the White House's list of political advisors, and the administration has continued to defend him even as the political risks have escalated. At a White House news conference Monday, Bush noted that Pitt had been approved unanimously in the Senate last year.

"I support Harvey Pitt," Bush said. "Harvey Pitt has been fast to act ... In a quick period of time, he has taken 30 CEOs and directors to task by not allowing them to serve again on a board or serve in a CEO capacity of a company."

The controversy seemed certain to reach a higher pitch this week. WorldCom executives on Monday exercised their Fifth Amendment rights against self-incrimination before a House committee. Bush will make his speech in New York, even as questions persist about his own lack of compliance with SEC laws while he was a board member of Harken Energy in 1990, and Harken's own questionable accounting practices. In Washington, the Senate begins debate on a bill by Sen. Paul Sarbanes, D-Md., which would introduce sweeping reforms for the accounting industry in the wake of the Enron/Arthur Andersen debacle, including the creation of a new oversight board to oversee the audits of publicly traded companies.

In Washington's never-ending search for a fall guy, the focus has turned to Pitt, whose resignation has now been called for by everybody from the editorial board of the Wall Street Journal to former Vice President Al Gore. But while it may be good politics to go after Pitt, some consumer advocates take a more nuanced view of the embattled chairman.

"You could say there is a before Enron/after Enron division with Harvey Pitt," says Barbara Roper, director of investor protection at the Consumer Federation of America. "It's really an enforcement vs. policy division. When Pitt was nominated, frankly, I viewed it as the best deal we were going to get out of a Republican administration. Everybody who I talked to who knew him better than I did said he would be tough on enforcement and not a deregulation ideologue."

In fact, Roper says she was pleasantly surprised when, soon after taking office last August, Pitt called for corporate leaders to fully and quickly disclose when they made stock purchases or sales, for example, and picked up the call from Levitt for "having filing reports be in plain English," Roper says.

But after Enron's dramatic fall later that year, the focus of the SEC became its regulation of the accounting industry, and a new push from corporate reformers to end the practice that allows auditors who are supposed to be impartial analysts of a company's ledgers from serving as paid consultants to the same company. Pitt, who had served as a lobbyist for the Big Five auditing firms before becoming SEC chairman, had pushed hard against such regulations in 2000, and he was finding support from Democrats and Republicans in Congress.

In June 2000, Pitt's predecessor Levitt argued such reforms were needed to avoid clear conflicts of interest. Pitt disagreed. The "regulatory focus on the performance of non-audit services obscures independence issues and disserves the public interest," he wrote at the time.

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