Davis Tackles Corporate Accountability

Gov. Gray Davis will announce a series of steps today aimed at strengthening corporate accountability in California, including seeking to revoke the license of the Arthur Andersen accounting firm and stiffening the penalties for securities law violations, administration officials said.

Seizing on a national issue as he seeks reelection, the Democratic governor also will sign three bills tightening controls on corporate accounting practices and appoint a prominent consumer advocate to the state board that regulates the accounting industry, the officials said.

The bills that Davis is poised to sign will put California at the forefront of corporate accountability efforts, consumer advocates said.

“This package of bills will help restore consumer confidence in the financial practices underpinning our corporate system,” said Betsy Imholz, director of the West Coast office of Consumers Union, a national consumers advocacy group. “And we believe restoring the public confidence in corporate accountability is critical at this point.”

Recent scandals involving Enron, WorldCom and other corporate high-fliers have rocked the U.S. economy and ravaged the 401(k) retirement plans of millions of Americans by causing stock prices to plummet.

For Davis, the issue of corporate responsibility offers the possibility of increased political profit because of the recent focus on the business practices of his opponent, Republican Bill Simon Jr.

Davis campaign advertisements have hammered the Republican candidate over a Los Angeles jury’s $78-million judgment against the Simon family financial firm and an IRS investigation of Simon’s use of offshore tax shelters.

The timing of Davis’ corporate accountability initiative may be more than coincidence: President Bush begins a California swing today that Simon supporters hope will help their candidate’s battered campaign and take some of the public focus off Simon’s business problems.

Corporate reform has been high on the White House agenda recently as well. In late July, Bush signed a law aimed at cracking down on questionable business practices.

Davis is scheduled to announce corporate accountability reforms during an appearance today at a senior assisted-living center in Culver City, administration officials said.

The governor will also disclose that the Board of Accountancy is seeking to revoke the license of Arthur Andersen, which would bar the firm from the public accounting business in California. The firm was linked to Enron’s problems, among others. The board filed the action against Arthur Andersen on Aug. 16, an hour after learning that the state of Texas had lifted the firm’s license, administration officials said.

Under California law, the Texas action is grounds for revocation of an accounting firm’s license.

Arthur Andersen officials could not be reached Thursday.

Davis will also name Gail K. Hillebrand to the California Board of Accountancy, which regulates the accounting industry in the state. Hillebrand, 46, of Albany, is a senior attorney at Consumers Union, the advocacy group.

The three bills the governor is scheduled to sign are:

* AB 2873, by Assembly members Dario Frommer (D-Los Feliz) and Lou Correa (D-Anaheim), aimed at preventing the sort of document-shredding that came to light in the Enron scandal. It requires companies to retain audit documents and records for a minimum of seven years;

* AB 270, by Correa and Sen. Liz Figueroa (D-Fremont), strengthens state accounting laws and ends accounting industry domination of the Board of Accountancy by requiring a public majority;

* AB 2970, by Assemblyman Howard Wayne (D-San Diego), targets the “revolving door” between accounting firms and their clients. It bars accounting firm employees from going to work for a client within 12 months of providing audit services.

Davis will also announce a stiffening of criminal fines and prison terms for securities law violations, which the administration says will “boost investor confidence and protect consumers from corporate and accounting irregularities.”

The criminal fine for general securities law convictions will increase from $1 million to $5 million; the maximum criminal fine for securities fraud convictions will increase from $10 million to $25 million, and prison terms will be lengthened from two to five years to five to 20 years.