Securities & Exchange Commission Chairman Harvey L. Pitt is out to clean up Corporate America, and, after a slow start, he's doing a good job. Pitt is everywhere, giving speeches, suggesting corporate governance changes, and sending the message that the new sheriff in town will not put up with any accounting fraud after the Enron Corp. scandal.
Pitt's aggressive attack on alleged accounting fraud at Xerox follows a series of inquiries by the SEC involving Williams Cos. and Adelphia Communications. The SEC has already fined Arthur Andersen, Waste Management, and others. But with Xerox, Pitt is upping the ante. First the SEC persuaded Xerox to restate its earnings for several years. Then Xerox had to pay a record $10 million civil fine for its poor financial reporting. Now the SEC is widening its probe to include Xerox auditor KPMG, former Chairman Paul A. Allaire, and former CFO Barry Romeril. The SEC is holding individuals as well as companies responsible. This is tough stuff.
Pitt is also leaning on the New York Stock Exchange and Nasdaq to impose much higher governance standards on the companies that list with them. He wants key audit, compensation, and nominating committees on boards of directors to be composed of independent members. It's a good idea, and Pitt should lean hard on the two exchanges to change their rules to make sure all independent directors have no financial ties whatsoever to management.
Pitt is out to prove that he can clean up the accounting mess without new legislation from Congress. If he continues to play the role of tough regulator, he may be proved right.