Editorial: If no trust above, no trust below

Monday, Oct. 14, 2002 | 9 a.m.

With corporate scandals delivering body blows to the economy during a mid-term election year, President Bush this past March proposed a new board to oversee the nation's accounting industry. It was the accounting firms, notably Arthur Anderson that audited Enron and which was later convicted of obstruction of justice, that were principally blamed for the widespread loss of investor confidence as major companies announced sudden and staggering debt. The announcements triggered a plunge in stock prices and millions of investors lost money along with trust in corporate financial reports, throwing the stock market into its ongoing tailspin.

Congress this summer approved the new oversight board and charged the Securities and Exchange Commission, in consultation with the Treasury Department and Federal Reserve Board, with choosing its five members by Oct. 28. Once it's in place, the board's primary mission will be to restore the trust of investors. The law creating the board is clear on these provisions central to the trust issue: The board will be independent of the accounting industry and will aggressively police accountants who had in the past been virtually self-regulating.

Unfortunately, as the deadline nears for appointing the board members, SEC Chairman Harvey Pitt is creating exactly what the board is intended to erase -- mistrust. Press reports out of Washington have Pitt meeting with accounting industry firms during this selection process. Pitt, a lawyer who previously represented all of the Big Five accounting firms, is alleged to have knuckled under to accounting-industry pressure in withdrawing his support from a candidate for board chairman. The candidate, John Biggs, a pension fund executive, is an outspoken reformer who has the support of consumer groups.

Now, on the eve of the appointments' deadline, we have Democratic leaders of the House and Senate calling for Pitt's resignation. Sen. John McCain, a Republican, has already called for his resignation. Consumer groups have long been wary of Pitt and now even Wall Street executives are doubting his leadership. The question is how much longer President Bush will wait before he acknowledges that faith in the oversight board can only be achieved if there is faith in the person appointing its members.