Statement by SEC Commissioner:
New Public Company Accounting Oversight Board
Commissioner Harvey J. Goldschmid
U.S. Securities and Exchange Commission
SEC Headquarters, Washington, D.C.
Open Commission Meeting
October 25, 2002
We meet today to cast our votes at a decisive moment for the investors whose interests we have pledged to protect and the markets whose integrity we have promised to preserve. We meet in public to pay homage to the principles of accountability, disclosure, and transparency that have served the nation so well since the birth of the SEC. We meet as a body to make a critical choice that has been entrusted to us by the Congress and the people it represents. Yet we are not today a united body, and I deeply fear the consequences of our division.
In early September, in my first public speech as a member of the Commission, I said that the "most important task that the Commission now has before it is the creation of a strong and credible Public Company Accounting Oversight Board." There should be no misunderstanding of the critical role to be played by the new Oversight Board. The future health of the accounting profession, and derivatively, of the quality and integrity of our financial disclosure process will depend, in meaningful part, on what we do today. In terms of the public's stake in what we are doing, the simple answer is that honest and high quality financial numbers are necessary to make our economic system work.
The Oversight Board was the centerpiece of the Sarbanes-Oxley Act, which was the bold step Congress took to repair the damage inflicted by the scandals at Enron, WorldCom, and Andersen. Congress entrusted this Commission to appoint an Oversight Board of "prominent individuals of integrity and reputation who have a demonstrated commitment to the interests of investors and the public, and an understanding . . . [of] financial disclosures . . . and the obligations of accountants. . . ."
On September 11th, Harvey Pitt and I met with John Biggs and indicated that each of us would support him to be chairperson of the Oversight Board. We told him that he would, of course, have to meet our other three colleagues and that no formal offer was being made. John was superbly qualified under the Sarbanes-Oxley criteria then and remains superbly qualified today. Indeed, the remarkable outpouring of support for John Biggs from the widest spectrum of informed opinion demonstrates the wisdom of what the Chairman and I did in September.
Yesterday, in the last of three excellent editorials, The Wall Street Journal stated:
"Mr. Pitt is reaching for the judge now as a politically safe alternative to appointing John Biggs, an early favorite for the post until the accounting industry started turning the screws on Republicans, who then turned them on Mr. Pitt. The auditors fear that Mr. Biggs, the CEO of a large teachers' pension fund, is too independent of their influence."
Also yesterday, The Washington Post editorialized:
"The outlook was brighter a month ago. Harvey L. Pitt, the SEC chairman, had invited John H. Biggs, the head of a large retirement system, to make himself available to lead the new oversight board. This was an excellent choice, and it would have been endorsed by all SEC commissioners, both Republican and Democratic. But the audit lobby squeezed the House Republicans . . . ."
It is a tragedy that the Oversight Board which had so much potential to restore investor trust will begin life under so dark and ugly a cloud.
Let me hasten to add that I have known Bill Webster for over 20 years. He knows that he has my deepest respect and admiration. No one can or should challenge Bill's integrity or dedication to public service. But this is not the right job for Bill, at least when a candidate with the qualifications and expertise of John Biggs is available and willing to serve. Bill has not been involved in the accounting issues the Oversight Board faces; he has no real accounting expertise; and the Oversight Board must deal with demanding, complex matters on tight time schedules.
In closing, I must say that I am deeply saddened by the harm the Commission's selection process for the Oversight Board has done to this agency. As a whole, the selection process has been inept. Until this morning , for example, I was not informed as to which five individuals would be presented to the Commission at this meeting. To my knowledge, none of the individuals has been properly vetted.
The members of the SEC staff have devoted themselves tirelessly to restoring faith in the nation's financial markets. Their efforts have been particularly noble in the context of the budgetary constraints under which they labor. I believe that all of us on the Commission owe the staff an apology for the ineptness of the selection process. I do so now. We also owe an apology to the nation. With the passage of the Sarbanes-Oxley Act, Congress spoke nearly unanimously to assure investors, employees, and pensioners that the losses they had suffered would not be in vain; that the enormous hardships they had endured would spawn real reform. I apologize to the nation. I deeply regret that the Commission has not acted unanimously or wisely today.
With no disrespect for individual members of the Chairman's slate, because the selection process has been so flawed, I will vote no on the slate as a matter of principle. Nevertheless, I congratulate the members of the new Oversight Board and pray that they will serve the nation well.