VideoPaul Volcker's second career is shaping up to be as influential as his first. Until recently, his claim to fame rested primarily on his tenure as Federal Reserve Board chairman from 1979 to 1987, when his tight money policy broke the back of the double-digit inflation that doomed Jimmy Carter's quest for a second term. But although Volcker's performance prepared the way for America's economic turnaround and longest-ever bull market, his star was eventually outshone by that of his successor at the Fed, Alan Greenspan.
Now, as Greenspan's own star has dimmed as the Internet bubble has burst, the 75-year-old Volcker has reemerged this time as a beacon of integrity in the business world. After leaving the Fed, he served as chairman and CEO of investment firm James D. Wolfensohn Inc. from 1988 to 1996, and became a professor (now emeritus) at Princeton University, his alma mater. Then, in 1996, he was chosen to chair the committee overseeing the restitution by Swiss banks to Holocaust victims. The committee's investigation ultimately uncovered thousands of accounts that probably belonged to victims of Nazi Germany.
In 2000 Volcker accepted the invitation of Arthur Levitt, then chairman of the Securities and Exchange Commission, to head the Oversight Board of the International Accounting Standards Committee. The board was charged with bringing IAS rules into greater harmony with U.S. generally accepted accounting principles. Levitt gave Volcker the job despite the latter's blunt comment that it was "arrogant" for the United States to believe that everyone should report in GAAP.
It was in part this reputation for bluntness and independence that landed him his next post. In one of the oddest footnotes to the Enron scandal, Arthur Andersen CEO Joseph Berardino hired Volcker to serve as chairman of a committee to reform Andersen. Such was Volcker's clout that Andersen agreed to adhere to any recommendations he made. Although this extraordinary initiative was abandoned quickly as Andersen fell apart, Volcker survived with his own reputation not just unscathed but even enhanced. So it was no surprise when SEC chief Harvey Pitt, shortly before his own downfall, called on him to head the new Public Company Accounting Oversight Board (PCAOB) mandated for the accounting industry by the Sarbanes-Oxley Act of 2002 (or "the Sarbanes Act," as Volcker called it during a recent Association for Financial Professionals conference, "since Sarbanes did 90 percent of the work"). Volcker declined Pitt's offer, citing concerns about the time demands of the job.
Abe de Ramos, managing editor of CFO Asia, recently sat down with Volcker for a far-reaching conversation about how the demands on his time have been influenced by the events of the past two years — and how those events have changed both the climate for corporate governance and the prospects for international accounting standards.
Now that you've turned down the PCAOB job, we're back to square one. Have your sentiments changed from two months ago?
No. I think it's unfortunate what's happened. [The first announced candidate was vetoed; the second, William Webster, resigned amid controversy. Charles D. Niemeier now serves as acting head.] I thought it was going quite smoothly and then, for whatever reason, it blew up. There are accusations of lobbying and political pressure.
What would make you reconsider the job?
I don't know. I urged them not to make it a full-time position. I thought it would be difficult to get people of the stature they wanted full-time, and that's proven to be the case.
Isn't the SEC in a crisis of its own?
"Crisis" is a strong word, but I think it is in sort of a crisis. Not just because of this. The SEC has been underfunded and understaffed for some time, and it hasn't had the ability to keep up with all that's going on in the market. And it's lost, I think, the confidence just because of a lack of manpower. All the government has lost prestige, but the SEC had a lot of prestige and moral authority and integrity. I still think it's got integrity, but it's lost some of its resources. One of the things that Sarbanes-Oxley did was to authorize a big, big increase in expenditures — small in terms of the total budget, but big for the SEC. That was important, and the Administration has refused to provide the funds that were authorized. [The agency] needs more money; it needs higher salaries.
Why did you decide to take on the job of IASC Oversight Board chairman?
I'm a sucker for punishment! It just came out of the blue. I've had some interest in international accounting standards just in a very general way, and I had no idea that this kind of international group was working on it, including Arthur Levitt, who was then the head of the SEC. He called me up one day and invited me to chair the oversight board. It sounded interesting, so I did it.
What progress have you made so far?
Well, the board has been reorganized. We're now getting to the point where we are issuing standards. The issues will be very controversial. I wish the first points [on financial instruments] didn't have to be so controversial, but that is perhaps inherent in the business.
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