Arthur Levitt, the dapper, 67-year-old chairman of the Securities and Exchange Commission, likes to present himself as the investor’s best friend. Then again, you’d expect as much of any SEC chairman. But Levitt’s fans contend that in this case, the self-characterization is right on the money.
They note, for example, that Levitt has forced state and local politicians to stop demanding campaign contributions in return for municipal bond business, which adds to the cost of underwriting tax-exempt bonds. He’s threatening to crack down on accountants who manage their consulting business in ways that compromise the integrity of corporate audits. And he’s demanding that companies adopt tough new accounting standards for derivatives, helping show how much risk such instruments pose. All to the benefit of investors.
“The chairman takes seriously his responsibility to protect shareholders,” says Edmund Jenkins, who last summer was appointed chairman of the Financial Accounting Standards Board, with Levitt’s blessing. For that reason, supporters are confident that Congress will approve Levitt for a second five-year term now that President Clinton has renominated him. Levitt failed to respond to CFO’s requests for an interview, although he answered a few questions via E-mail shortly before this issue went to press; a spokesman cited scheduling conflicts.
But in light of Republican control of Congress, Levitt’s inability to make time for an interview might also reflect a certain wariness about how his renomination hearings will proceed. Powerful GOP members like Sen. Phil Gramm of Texas and Rep. Richard Baker of Louisiana contend that Levitt’s efforts on behalf of investors have gone too far,hampering the ability of corporations and others to raise capital. Given such concerns, critics on Capitol Hill may vote to deny Levitt a second term.
Although Levitt is the only incumbent chairman of the SEC ever to be nominated for a second term, rejection is unlikely. Republican Sen. Alphonse D’Amato of New York, who chairs the Senate committee that will hold the hearings, says that he expects quick approval.
Whether Levitt deserves a second term is another matter. And the answer isn’t as clear as either his supporters or his opponents suggest. Levitt’s track record is inconsistent, and his agenda is something of a puzzle. Where, for example, does the SEC chairman stand on the fundamental issue of technology’s role in financial market reform? “A good question,” says James Angel, finance professor at the Georgetown University School of Business, in Washington, D.C.
Indeed, look more closely at those investor-oriented actions cited by Levitt’s biggest fans and you’ll see that some served Wall Street’s interests, too. For one thing, political contributions to municipal bond issuers came directly out of underwriters’ pockets, and the brokers may or may not be passing along the savings to investors. It’s impossible to tell, because the secondary market for municipal bonds is extremely thin, with price quotes for the same issue all over the map.
Also, brokers have as much of an interest as investors do in trustworthy corporate audits. Without them, investors would have ample reason to doubt whether the research that brokers often provide in return for their buy and sell orders is worth anything. And while requiring more disclosure of companies’ holdings of derivatives, Levitt let the six largest securities dealers set the voluntary standards for oversight of their derivatives affiliates.