Bush Still has Done Nothing For Corporate Reform

by Molly Ivins

Some days, I'd just as soon whack myself in the head with the newspaper as read it. Remember the time the stock market tanked, lost $6.65 trillion, 38 percent of its total value? That would be the last two years.

Silly us, we thought the Bushies were actually going to do something -- not much, but something -- about why it happened. Congress stepped nobly to the plate in the summer of aught-two -- as Enron, WorldCom, Tyco, etc. came crashing down around us -- and passed a Reform Bill. Yes, they did. Not a dissenting vote against it, even in the Republican House.

President Bush fought it right up to the final week, then turned around and not only signed it, but claimed credit for it. So we were all off on the rosy road to reform, led by none other than Harvey Pitt, Bush's man at the Securities and Exchange Commission, who spent his entire career as a lawyer for the major accounting firms. If Harvey Pitt were any closer to the accounting industry, he'd be in violation of the Texas sodomy statute.

Then, oops, bumps on the rosy road. Pitt appointed Judge William Webster to head the new oversight board that was supposed to clear up all the conflicts of interest in the accounting field, but Webster turned out to have some conflicts of interest himself. So Webster stepped down, and Pitt himself was canned on election night last year.

You probably thought he was long gone, but, nope, he's still head of the SEC. Bush hasn't gotten around to nominating anyone else. So Pitt is still there, working his fingers to the bone for his former clients.

Remember when we thought the minimum reform would be to separate the auditing and the consulting functions of accounting firms? Can that. The SEC plans to make it optional, leaving the choice up to a company's audit committee. Let's see, would Ken Lay and Jeff Skillings have voted to bring in another auditor to check out the offshore partnerships they set up with help from Arthur Andersen?

You're going to find this hard to believe, but Pitt is actually making the rules on the accounting industry weaker than they were before all the corporate scandals came out. Now it will be even harder for investors to find out how much a company pays its accounting firm for auditing work and how much for consulting work.

If you think all this is just some obscure infighting at an alphabet-soup agency, you haven't looked at your 401K lately. In 2000, the SEC was not prepared to actually do anything about the glaring conflict of interest between auditing and consulting by the same accounting firm, but at least it required that companies disclose the payments. Guess who represented the accounting firms during that battle? Harvey Pitt, arguing that it was a terrible idea.

The SEC is also backing down from requiring lawyers to make a public withdrawal from their clients if they fail to convince said clients to stop violating securities laws. The lawyers are naturally claiming this would violate lawyer-client confidentiality. People, the lawyer gets to keep his clients secrets after the crime is committed, not before.

Here's part of what still needs to be done:

• One of the major incentives for corporate crooks to cook the books is the practice of granting stock options that are not counted as a business expense. You get vast amounts of stock distributed to executives, who then have enormous incentive to create short-term increases in the stock price so they can cash out before the price plummets.

• The Litigation Reform Act of 1995, passed by the Republican Congress over Clinton's veto, gives protection to accounting firms that approved false earnings statements and allows immunity from lawsuits for accountants who fail to spot or disclose fraud. That's ridiculous. Other laws passed in 1996 and 1998 severely limit the possibility of recovery by defrauded investors and force class-action suits into federal courts under weak federal laws.

  There are only two ways to control corporate greed: one is by government regulation, but for 20 years now regulatory oversight has been systematically shut down, bought off and defunded. The other way is by suing the bastards, but access to the courts is also being systematically shut down by round after round of "tort reform."

• Shut down the off-shore tax shelters and mail-drop corporations.

• Give workers the right to elect the trustees of their retirement funds. Put independent directors on corporate boards.

• Regulate derivatives.

• Do not permit accounting firms to offer both auditing and consulting services to the same clients.