Accounting & Tax

Can a New SEC Chairman Repair Relations With Top Execs?

Why one trade group thinks the SEC is picking on Corporate America
Lisa YoonApril 9, 2001

Corporate America is mad as hell and not going to take it any longer.

At least that’s the word from Barry Rogstad, president of the American Business Conference, a Washington, D.C.-based coalition of midsize public growth companies.

Noting the recent string of directives from the Securities and Exchange Commission—Regulation FD, new rules for reporting business segments, the SEC’s support for a number of new accounting standards regarding derivatives reporting and goodwill—Rogstad is growing concerned about the relationship between the SEC and businesses in general.

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“The [regulatory] environment is becoming increasingly adversarial,” he insists.

Rogstad believes that the SEC’s increased questioning of companies’ motives has led American companies to feel under constant and undue pressure to prove that they are above board. “For the benefit of investors, companies, and regulators alike, there does need to be some healthy tension,” he says. “And certainly, there are always going to be some rotten eggs. But for the SEC to assume that the instincts of [senior managers] are not to do it right, does not help at all.”

Rogstad does sound somewhat touchy and defensive. However, he blames SEC chief accountant Lynn Turner for putting corporate execs on the defensive.

He points to a March 10 speech given by Turner, who expressed concerns about what he believes is growing questionable behavior among CFOs and corporations. Turner said: “When on a weekly basis there are press reports on alleged financial frauds among members of corporate America with household names such as Sunbeam, Waste Management, Rite Aid, Lucent, and Xerox; when the public challenges the role of corporate governance and audit committees in these events; when it becomes all too common that chief financial officers are being convicted of cooking the books and sentenced to jail terms; and when people ask where were the auditors when restatements of financial statements are on the rise and run into the billions of dollars, let us act with accountability and responsibility to make sure…investors have confidence in the numbers on which [they] make investment decisions.”

And in a March 15 Bloomberg News article, Turner warned that the SEC would be looking for signs of fraud in future annual reports, noting, “if we’d been doing this a year or two ago, I suspect we wouldn’t have had a Lucent or a Xerox.”

Yet, a few days later, the SEC declined further comment. A spokesman tells CFO.com simply that the SEC would be reviewing annual reports more closely because they now have more time to do so, now that the IPO market has died down.

“It’s completely inappropriate for senior SEC officials to be naming companies in that context,” says Brian Borders, president of the Association of Public Traded Companies in Washington, D.C.

One source blames strident remarks like Turner’s on the fact that no one has been officially leading the SEC ever since Arthur Levitt resigned a few months ago. Laura Unger is currently acting chairman until an official appointment is made. “It would seem that the staff thinks they can say whatever they want, now that Arthur Levitt is gone,” says one person who asked not to be named.

Two people have already been offered the job but have turned it down. They are former Morgan Stanley Dean Witter president John Mack and Joseph Grundfest, a professor at Stanford Law and a former SEC commissioner.

Why are seemingly strong candidates turning down what appears to be a very prestigious, high-profile and influential job? Rogstad feels the job is unattractive for two reasons.

One, the overall financial markets appear to be in decline and possibly entering a protracted bear market.

The other reason is that the appointee would be forced to divest his or her investments in individual stocks to avoid perceived impropriety. “There are so many conflicts of interests it isn’t even funny,” he points out.

For his part, Rogstad has made his organization’s priorities clear, noting, “I was in the White House the other day. The message [about appointing a chair] was, ‘I just want to remind you that the SEC job matters. That’s all I’m going to say.’”

Perhaps high on the new appointee’s agenda will be the patching of relations with Corporate America.