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Monday, 28 October, 2002, 22:03 GMT
SEC vote creates partisan rift
SEC chairman Harvey Pitt (left) and William Webster, who has been chosen to oversee a new accounting oversight board.
Mr Pitt (left) backed Mr Webster's selection as chairman

The US Congress had hoped to reform accounting when it overwhelmingly passed legislation over the summer to create an oversight board to look after corporate auditors.

But with the appointment of William Webster on Friday to head the newly created Public Company Accounting Oversight Board, the unity lawmakers displayed in passing that the legislation has been reduced to partisan bickering.

Oversight Board
William Webster, chairman
William Gradison Jr, member
Kayla Gillan, member
Charles Neimeier, member
Daniel Goelzer, member
Mr Webster, backed by Republicans, was chosen over John Biggs, a populist favourite, after a contentious 3-2 vote by the board of the Securities and Exchange Commission (SEC).

That led to charges by Democrats that the process of choosing the head of the new agency had become politicised and would therefore not serve well the interests of the public for whom it was created.

Harvey Pitt, who heads the SEC, denied there had been an orchestrated campaign to ensure Mr Biggs - a pension-fund chief who built a reputation for tough auditing standards - did not get the job.

"I am beholden to no one," Mr Pitt declared after Friday's vote.

Insider ties

Amid this contentious mood, the new standards board must begin the process of laying out its role in regulating auditors under a cloud of mistrust.

In addition to Mr Webster, the former chief of the Central Intelligence Agency (CIA), four others were selected to serve on the oversight board, William Gradison Jr, Daniel Goelzer, Charles Neimeier and Kayla Gillan.

SEC chairman Harvey Pitt
Mr Pitt must now mend deep rifts in his agency

Of those only Ms Gillan, the former general counsel of the California Public Employees' Retirement System (Calpers), is truly reform-minded, says John Coffee, a law professor at Columbia University in Manhattan.

"A number of the other people seem to have long insider ties to Washington or have been basically close associates of Harvey Pitt," Mr Coffee told BBC News Online.

Biggs veto

The chief responsibility of the new standards board is to establish auditing standards for public accountants.

But some fear that the new agency, rather than tackling the issue and demanding tighter standards, will instead pass the responsibility on to the American Institute of Certified Public Accountants (AICPA), an accountants trade group.

As a whole, the selection process has been inept

Harvey Goldschmid, SEC commissioner

"If they do that, then the whole exercise has been an exercise in futility," Mr Coffee said.

"However, that is the likely course of action that Mr Pitt would want and that probably is the principal reason for the vetoing of Mr Biggs," he adds.

Congress sought to replace the AICPA as the standards-maker when it passed the Sarbanes-Oxley Act in July, which established the accounting oversight board.

Building consensus

That would likely give Democrats in Congress and at the SEC more ammunition for their suggestion that the selection of Mr Webster was heavily influenced by accounting lobbyists and their Republican allies.

"As a whole, the selection process has been inept," said SEC commissioner Harvey Goldschmid, a Democrat who voted against Mr Webster.

"This is not the right job for [William Webster]," Mr Goldschmid said, adding that the 78-year-old Mr Webster did not have "real accounting experience".

The highly charged atmosphere has the potential to create greater rifts at the SEC, where few have existed before.

Mr Pitt may be a smart man and a very honest man, Mr Coffee says, but he is someone who does not conciliate well and demands obedience.

The best of chairmen have been able to bind the five SEC commissioners together as a collegial team and achieve compromise to reach a unanimous vote on major issues.

Says Mr Coffee: "That looks like exactly the kind of character traits that Harvey Pitt lacks."

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