Harvey L. Pitt resigned in November as chairman of the Securities and Exchange Commission because of his ineptitude and his opposition to reform of the accounting industry, even as Enron and other accounting scandals blew sky-high. So what is he doing this week chairing key meetings of the SEC deciding the fate of accounting reforms that are supposed to restore investor confidence?
President Bush nominated former New York Stock Exchange head William H. Donaldson in December to chair the SEC but has not sent the nomination to the Senate. That has allowed Pitt to remain in charge -- and to water down congressionally required reforms in the guise of writing regulations to put them into effect.
The reforms are bitter medicine for an accounting industry that has become accustomed to fat consulting contracts from business but they're the only way to ensure the health of corporate America.
The commission has until Sunday to turn into law the accounting reforms called for by the Sarbanes-Oxley Act, which was passed last summer by Congress and signed by Bush. On Wednesday, the five members of the commission did unanimously pass some rules that will help tighten regulatory efforts. One requires that auditing firms rotate the senior partners assigned to a particular firm, so they don't develop comfortable insider relationships. The commissioners also prohibited accounting firms from providing lucrative consulting and nonauditing services such as financial systems design and legal services.
But on the most serious and important issue facing them, Pitt and company are still listening mostly to the accountants. Congress did not specifically ban auditors from consulting on the creation of tax shelters, but after Enron the SEC itself recommended it. No longer.
SEC commissioners approved a meek rule requiring corporate boards' own audit committees to "oversee" complex tax-shelter planning by accountants. But audit committees will vary widely in energy, knowledge and independence. They will be hard-pressed to ensure that tax dodges stay well within the law and serve shareholder interests instead of, say, top executives' compensation.
Having failed to protect the public interest on tax shelters, the commissioners should at least vote to require company lawyers to resign and notify the SEC if they believe fraud is taking place. But it is even more urgent for Bush to get Donaldson in place before Pitt does further damage.