Meet Steve Harris
Months before the failure of Lehman Brothers, which collapsed when the markets learned its mortgage-related securities were breathlessly overvalued, Ernst & Young awarded Lehman an unqualified opinion for its accounts.
Months before the government bailed out AIG because of massive exposure to bad bets in exotic derivatives, PricewaterhouseCoopers assured investors that AIG’s books were completely solid.
Months before the bankruptcy of Washington Mutual, Deloitte assured investors the balance sheet suffered no blemishes.
These auditors clearly betrayed the investor confidence they were hired to foster.
Much must be reformed in this arena, and many responsible, informed and well positioned people intend to do so.
Steve Harris hopes to translate these good intentions into tangible reform. Harris serves as member of the Public Company Accounting Oversight Board. On March 16, he convened a meeting of the PCAOB advisory group to plot reform. These minds included SEC Chair Mary Shaprio; Brandon Becker of TIAA-CREF, former market regulation chief of the SEC; Lynn Turner, former chief accountant of the SEC; Judge Stanley Sporkin, former SEC commissioner; Ann Simpson, investment officer of CalPERS; Ann Yeager, director of the Council of Institutional Investors; Damon Silvers of the AFL-CIO; and many others.
Harris himself brings stellar if unsung credentials. He directed the staff of the Senate Banking Committee under chairmen Sarbanes and Riegle. The strength of the Sarbanes-Oxley Act in correcting the ills exposed by the Enron scandal owes much to Harris’ steady political and policy hand.
At the March 16 meeting, Becker describes Harris’s job with credit agency reform as “herding cats.” Fixing the problem will face many hurdles, not least of which is the oligopoly of the industry. The four largest firms accounted for 98% of the audits measured by market capitalization, and 99% measured by revenues, figures Lynn Turner, now forensic accountant in Colorado.
Many reforms ideas present themselves:
Grades, instead of the current pass-fail score auditors offer, and where nearly 99.9% plus win a “pass.”
Term limits for auditors, requiring a public company to select a new auditor every, say, four years. Further, a public company would be proscribed from returning to an auditor for, say, 20 years. This would help reduce the oligopoly, as the current “Big Four” would only be able to serve a company for 16 years.
Allowing shareholder to choose from a minimum selection of, say, three auditors in the annual meeting vote. Auditors could “campaign” for the shareholder vote with a 500 word statement, the same limit allowed shareholder proponents for their resolutions.
Combining the shareholder vote with term limits. This could break the oligopoly even faster.
Amidst the petty and grand corruptions that characterize bank lobbying, Steven Brown Harris is a rare gem in Washington. I once worked with him and consider him a dear friend. The son of a named partner in the storied New York Firm of Fried Frank Harris Shriver & Jacobson, raised with some privilege in Manhattan, educated at Dartmouth, Harris eschewed the comforts that a Wall Street job might have afforded to defend average Americans through a career of government service. He often visits his mother in Manhattan using the Chinatown bus. Harris competed as a boxer at Dartmouth. He’ll need all these qualities and skills for auditor reform.
Bartlett Naylor is the financial policy advocate for Public Citizen’s Congress Watch.