Throwing into turmoil the government’s effort to restore confidence in big business, the chairman of a new accounting oversight board stepped down under pressure Tuesday, saying, “It is time to clear the air.”
The departure of former FBI Director William Webster bodes ill for a board that was supposed to bring renewed integrity to corporate finance. He quit on the eve of the panel’s first organizational meeting, after being accused of lying about the accounting problems of a company whose audit committee he headed.
“My continued presence on the board will only generate more distractions,” Webster wrote in a resignation letter dated Monday but publicly disclosed Tuesday. “Therefore I must step aside.”
The veteran Beltway insider addressed his letter to Harvey Pitt, the lame-duck Securities and Exchange Commission chairman who resigned on election night after being criticized for engineering Webster’s Oct. 25 appointment.
Webster’s swift exit could give a boost to the candidacy of John H. Biggs, retired head of the TIAA-CREF pension fund, who had been the favorite to take on the oversight board’s chairmanship until Pitt withdrew his support.
But Biggs faces a formidable roadblock. In an interview Tuesday, U.S. Rep. Michael Oxley (R-Ohio) pledged to oppose Biggs, saying his previous public statements show he has an agenda exceeding the outlines of the Sarbanes-Oxley Act that established the new board this summer.
“We’re hopefully looking for somebody who will follow the dictates of the Sarbanes-Oxley law and not go beyond the scope of it,” said Oxley, who sponsored the landmark legislation along with Democratic Sen. Paul Sarbanes of Maryland.
Oxley also said he doubted that any new appointment would be made until after a new SEC chairman is confirmed–a process the White House has said could take weeks or months.
Biggs is an outspoken advocate of reforms the accounting industry has long resisted, including a periodic rotation of corporate auditors and a strict division between auditing and consulting practices. Critics said that in backing Webster instead of Biggs, the SEC caved in to an industry determined to limit the board’s activism.
On Tuesday, Biggs supporters were reviving his candidacy. The only question is whether Biggs still would be willing to serve, given the divisive atmosphere, said Arthur Wyatt, a University of Illinois professor. “The fact that the accounting profession was opposed to him is a plus in my view. The accounting profession is in denial, and the thing has become a political football.”
Added former SEC Chairman David Ruder: “His appointment would satisfy a lot of the critics. He would be quite effective.” Biggs could not be reached for comment Tuesday.
Board without a leader
As it stands, with no chairman, the board faces a tall order in restoring confidence at the same time it establishes a new federal agency from scratch, observers say. Under Sarbanes-Oxley, the five-member board has substantial new powers but no existing staff, offices or budget.
The board’s first task will be setting up a system whereby major U.S. companies will pay to fund its oversight activities. It needs to recruit key administrators, and introduce a new regime for inspecting the nation’s accounting firms.
Being without a chairman “strikes me as a particularly difficult circumstance when you’re getting organized and hiring staff and doing the things you need to get up and running,” noted Michael Cook, former chairman of the Deloitte & Touche accounting firm.
The new board also is supposed to establish a disciplinary system. Under the new law, it can require accountants to produce documents and testify at its hearings, then kick them out of the profession or impose steep fines if they are found to be transgressing.
Perhaps most important, it has a yet-to-be-defined role in determining the nation’s auditing standards, as well as principles for quality control and ethics. The board is slated to be operating in April.
“They need to get this organization up and running rapidly,” said Arthur Bowman of Bowman’s Accounting Report. “If they get bogged down in minutiae they will miss the big picture, which is ensuring these accounting firms do quality work.”
Webster’s resignation came amid allegations that he had mishandled his role as chairman of the audit committee at U.S. Technologies, a small company that is being accused of fraud by its shareholders.
Webster had led CIA, FBI
The 78-year-old former federal judge, who headed the CIA as well as the FBI, fired U.S. Technologies’ outside auditors last year as the company’s business prospects plunged.
The accounting firm, BDO Seidman, said its dismissal came shortly after it warned Webster about financial problems at the company.
Last week, Seidman accused Webster of making “false and misleading” public statements about what he knew.
Webster, who could not be reached for comment Tuesday, has denied the accusations and defended his work for the company. Oxley voiced support for him. “He was just a victim of circumstance,” Oxley said. “It’s disappointing and sad.”
Webster said that he had disclosed details of his service at U.S. Technologies to Robert Herdman, the SEC’s chief accountant, who then told Pitt that the episode posed no barrier to Webster’s appointment. Pitt failed to share the information with fellow commissioners or the White House.
When news of Webster’s role in the U.S. Technologies affair surfaced, the public outcry led to the resignations of Pitt, Herdman and, finally, Webster.
