Levitt's book

Doug Henwood dhenwood at panix.com
Mon Sep 23 14:12:23 PDT 2002


Excuse me for serially posting bits from this week's ish of Business Week. The mag features excerpts from Arthur Levitt's book on his years at the SEC. Two choice excerpts, chosen for partisan balance:


>When I arrived at the Securities & Exchange Commission in mid-1993,
>I found nearly all of Corporate America lined up against the "gnomes
>of Norwalk," otherwise known as the Financial Accounting Standards
>Board. The controversy raged over whether companies should treat
>stock options as an expense against earnings on their income
>statements, just as they treat salaries, bonuses, and other forms of
>compensation. Corporations insisted they should not, since no money
>actually flowed from company coffers. The FASB, the independent,
>private-sector body located in Norwalk, Conn., that sets accounting
>standards, said they should. To the FASB, options had real value to
>their owners, and involved real costs to shareholders. In June,
>1993, it voted unanimously to seek comment on a rule that would make
>companies put a fair value on their stock option grants and record
>that number as an expense.
> Corporate lobbyists, outraged by the FASB's perfidy, persuaded
>Congress to hold hearings. The pressure from Silicon Valley's
>high-tech companies, whose lack of revenues and weak profits made
>cash compensation difficult, was intense. Even the Clinton
>administration opposed the rule.
>Senator Joe Lieberman, the Connecticut Democrat who would become Al
>Gore's running mate in 2000, led the charge. He introduced
>legislation to bar the SEC from enforcing the rule. In addition,
>Lieberman wanted to strip the FASB of authority by requiring the SEC
>to ratify each of its decisions, in effect relegating private-sector
>standards to mere recommendations.
>Lieberman didn't stop there. He also sponsored a Senate resolution
>that declared the FASB proposal a cockamamie idea that would have
>"grave consequences for America's entrepreneurs." Joining him were
>numerous Republicans and a smaller group of so-called New Democrats
>who prided themselves for their pro-business positions, especially
>toward Silicon Valley, the fount of large campaign contributions. By
>saying that stock options were essential to one particular segment
>of the economy, they were arguing, in effect, that transparent
>financial statements should be secondary to other political and
>economic goals.
> While Lieberman's bill did not pass, his resolution did--by an
>overwhelming 88-9. Though it was nonbinding, it was an unmistakable
>signal that Lieberman had the votes to stop the FASB if it pushed
>ahead. I, too, was lobbied hard. In my first few months in
>Washington, I spent about one-third of my time being threatened and
>cajoled by legions of business people. I recall a discussion with
>Home Depot (HD ) Chairman Bernard Marcus, who became increasingly
>animated throughout our meeting, at the end of which he warned:
>"This will be a terrible blow to the free enterprise system. It will
>make it impossible to start up new businesses."


>The accountants also opened the campaign contribution spigot. The
>Big Five firms, individual partners, and the AICPA pumped gobs of
>money into the election coffers of Congressional candidates and the
>Bush campaign. Altogether, they gave $14.5 million in the 2000
>election cycle, according to the Center for Responsive Politics, a
>nonpartisan research group. The center lists the industry as No. 27
>in total contributions, out of 122 sectors it ranks. That puts
>accountants above the defense industry but below telecoms.
> Boy, did those donations get results. Not only could the AICPA
>get lawmakers to contact me on demand, it also persuaded the Senate
>Banking Committee's securities subcommittee to hold a hearing; its
>chairman, Minnesota Republican Rod Grams, had received $60,000 from
>the industry. (He would lose his reelection bid that November.)
> Accounting firms also got their clients to weigh in. In a
>September, 2000, letter, Enron Chairman Kenneth L. Lay said that
>Enron's use of Arthur Andersen as both internal and external auditor
>was "valuable to the investing public...given the risks and
>complexities of Enron's business...."
>Around this time, I received an ominous phone call from Senate
>Banking Committee Chairman Phil Gramm, who opposed the rule but who
>had a finely tuned sense of fair play. The Texas Republican warned
>me that his GOP colleague, Alabama's Richard Shelby, was preparing
>an "appropriations rider" to our funding bill that would bar the
>agency from spending taxpayer funds to enforce the rule. A similar
>rider was in the works on the House side. Gramm advised me to cut a
>deal with the accountants, or else the riders would pass.
> Alarmed, I called Senator Trent Lott, then majority leader, at
>home. I pleaded with the Mississippi Republican not to let this
>important issue be resolved by dead-of-night appropriations riders.
>"No matter what you think about the issue," I said, "the process
>should be aboveboard." I told him that such publications as The New
>York Times, Washington Post, and BusinessWeek had all endorsed the
>rule. "Well, Arthur," Lott said, "I'm not familiar with what you're
>proposing to do, but if those liberal publications are in favor of
>it, then I'm against it."



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