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CNN Novak, Hunt & Shields

Interview With Michael Oxley

Aired June 29, 2002 - 17:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ROBERT NOVAK, CO-HOST: I'm Robert Novak. Al Hunt and I will question a leading congressional watchdog in the widening corporate corruption scandal.

AL HUNT, CO-HOST: He is Republican Congressman Michael Oxley of Ohio, chairman of the House Financial Services Committee.

(BEGIN VIDEOTAPE)

HUNT (voice-over): Chairman Oxley announced hearings into the massive accounting fraud by WorldCom, subpoenaing past and present executives of the telecommunications giant. After it was revealed that WorldCom hid $3.9 billion in expenses, the Securities and Exchange Commission filed fraud charges.

HARVEY PITT, SEC CHAIRMAN: We have a fraud and a scandal, and the people who are responsible for letting this happen and not uncovering it will pay seriously for their misdeeds.

HUNT: The Senate Democratic leadership pressed for a bill that would impose tougher oversight over the accounting industry, a bill opposed by President Bush and the SEC.

SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: We are dismayed and we are angered with the news of WorldCom today. We don't know yet whether laws were broken, but there must be aggressive enforcement of the law.

HUNT: Michael G. Oxley, after eight years in the Ohio legislature, was elected to Congress in 1981 at the age of 37. Last year, he became chairman of the Banking Committee, given expanded jurisdiction and renamed the Financial Services Committee.

(END VIDEOTAPE)

HUNT: Mr. Chairman, every day we read about a new corporate scandal -- Enron, Arthur Andersen, Tyco, Halliburton, WorldCom and now Xerox. Is corporate corruption in America more pervasive, as the Wall Street Journal recently suggested, than any time since the '20s?

REP. MICHAEL OXLEY (R-OH), CHAIRMAN, FINANCIAL SERVICES COMMITTEE: I don't think so, Al. I really think that we go through these cycles, and probably no worse than some of the things that happened in the '20s or the Insol (ph) scandals or -- this tends to be cyclical, and I suspect that this is one of those cycles brought about by a lot of different factors, including a very strong, vibrant economy, the growth of the so-called new economy. And I think any time you get that, you get a lot of speculation, you get a lot of corner-cutting. And we're starting to see that very much in evidence.

HUNT: You're chairman of the key committee, as we noted. What can be done to protect the shareholders and taxpayers from some of the fleecing that has gone on?

OXLEY: Well, we passed our bill, the Corporate Accounting Responsibility Transparency Act, a couple of months ago that I think really gets at the heart of it.

First of all, we say that any corporate insider who sells his stock has to report that the next day to the SEC and to the public. That will, of course, perhaps in the case of Enron, would have sent some red flags up early that -- when some of the corporate insiders were bailing out. That law now is some 70 years old and really doesn't reflect what's happening in today's world with instant communications.

OXLEY: It's also important that we have oversight over the accounting profession. Our bill sets up, for the first time, an accounting oversight board that would be under the aegis of the SEC, that would have power to discipline the auditing profession.

Those kinds of things, I think, are inherent in what we try to do.

HUNT: We'll come back to some of that later, but a centerpiece of the Republican revolution was deregulation. Given all these experiences, would you say now what we need is more regulation, not less regulation?

OXLEY: Not necessarily, no. I think that it's really overblown in terms of deregulation. I'm not sure exactly what that specifically means. We've always had a need for the SEC oversight over these publicly traded companies.

The SEC, I think, in some respects, has been undermanned and underfunded. One of the things we did was increase the enforcement- division funding for the SEC by some 70 percent.

We also provide a pay parity, so that the SEC people can get paid the same amount as the banking regulators, for example. They've had a big problem retaining quality people at the SEC. Had the discussion, starting with Arthur Levitt and now with Harvey Pitt. We're making some progress in that regard.

But all of those things, I think, coming together mean that you have to have a regulated market, but a market that basically relies on the private sector to discipline. And I think, frankly, the private sector and the private markets really discipline better than -- if you look at Enron's basically in deep trouble, and Arthur Andersen is practically gone. WorldCom could be next. The marketplace is a very strong disciplinary force. NOVAK: Mr. Chairman, president Bush has been speaking out more frequently about the problem of corporate corruption. His radio address this weekend is on that subject. But the word is, he will give his first full-time address on this subject on July 9. Why so late? These scandals have been going on all year since the Enron scandal broke.

OXLEY: Well, I don't know the answer to that, Bob. Although he has spoken out, if you'll recall, when the Enron situation happened...

NOVAK: Not in a full-scale address.

OXLEY: I understand, but remember, the president came out with his 10-point plan. And interestingly enough, that was pretty well mirrored in what we were trying to in our CARTA legislation that ultimately passed the House with 334 votes.

So I think the president has been out front. He spoke yesterday in Canada. So ultimately, I think the president feels deeply about this. He feels offended by some of these miscreants in the board room and at the top of major corporations. And I think that's heartfelt.

And I think they're looking for a forum, they're looking for a venue. And now, as I understand it, they've settled on New York City, which is, obviously, appropriate. And I think he will be in full throat (ph).

NOVAK: There's been some fear that this would really spook the markets, even make things worse, when the president gets going on it. Have you been worried about that, too?

OXLEY: Not necessarily. I think the people look to the president for leadership on this issue. I think they look for some reassurance. The president's indicated time and time again that the vast majority of CEOs and top executives are honest and forthright, that these companies are well run and they're solid.

It didn't happen overnight, but there are some aberrations out there and some real problems. And the president is determined that those who have violated the law are going to be punished.

NOVAK: Are you worried, as he has appeared to be worried, that these scandals are going to have an effect on the markets and on the economy?

OXLEY: Well, they already have.

NOVAK: On the economy?

OXLEY: Yes, of course. And I think in the long term, though, it will not. But in the short time, I suspect that it does have an effect on investor confidence.

Our markets are based on confidence, and right now, I think a lot of folks are very concerned, and obviously, we have to address that. HUNT: Chairman Oxley, a minute ago, you pointed out that you had passed legislation to increase funding for the SEC and to provide more pay for regulators there. That, of course, was an authorization, not an appropriation.

And yet you defend President Bush, who, in two budgets and a supplemental, has not called for any increases for the Securities and Exchanges Commission nor gone along with this sense of paying the regulators more, which, as you said a minute ago, is very much needed.

How can we take the president seriously when he talks about the need for tougher enforcement when he hasn't backed it up with his own actions?

OXLEY: Well, Al, he did ask for an 8 percent -- in fairness, they asked for an 8 percent increase in the SEC, which is...

HUNT: Far less than you want.

OXLEY: I understand. And understand that those -- the SEC is run by fees paid by the investing public and by traders, and that money is basically used for that purpose. It's a user fee, if you will. So people who use the stock market pay those fees.

HUNT: Well, he hasn't come out for the pay parity for regulators.

OXLEY: Well, he did get the -- OMB did grant 100 new positions at the SEC in regard to that pay parity issue. But this is an ongoing thing, and I suspect and I hope that the president, perhaps in his speech in New York, will come toward us in terms of the need for fully fund the SEC.

NOVAK: Mr. Chairman, one more question before we take a break. Harvey Pitt, the chairman of the SEC, has come under terrific fire as being very complacent and not being a good regulator. Speaking at the Economic Club of New York on Wednesday, he said, quote, "As part of our goal of reassuring fraud-wary investors, we plan to require our 1,000 largest companies to file a formal certification with us on the accuracy and completeness of their last annually reports," end quote.

Do you think asking companies, "Are you really honest," is that going to be solving this problem?

OXLEY: Probably not, Bob, I don't think so. I think it's good, but it's not going to be the total answer.

I think that only the efforts by the Congress and by the SEC to reassure the market and, indeed, the private sector -- the SROs, New York Stock Exchange's committee that recommended changes, the business roundtable recommendations -- those kinds of things, all in concert, ultimately, I think, will reassure the markets.

NOVAK: OK, we have to take a break. But when we come back, we'll ask Chairman Michael Oxley, how much should government regulate corporate America? (COMMERCIAL BREAK)

HUNT: Mr. Chairman, one of the problems with Arthur Andersen was what many saw as a conflict of interests between their auditing role and their consulting role. As you know, former SEC chairman Arthur Levitt tried to put an end to that. You weren't very sympathetic at that time. Your bill doesn't go very far in putting an end to that; Senate bill goes further.

Do you think maybe, in light of all these shenanigans with auditing firms, that it's time to end what some see as this conflict of interests?

OXLEY: Well, I think it's going to end, Al, but I don't think it necessarily should end with federal legislation.

Our bill basically outlaws two things with the accounting profession. That is, they can't do the internal and external audit, and they can't do information-technology consulting. The rest we leave to the SEC.

I think the SEC is very well positioned to determine whether in fact there are conflicts. It's already starting in the accounting industry, where they've split off, in many cases, their consulting with their auditing. I think that's...

HUNT: You think they should do that?

OXLEY: Well, that's their call, and I think it's the marketplace's call. But my sense is the marketplace will dictate that, yes.

HUNT: Well, let me ask another issue like that. In the WorldCom situation, there was this analyst, Jack Grubman, of Smith Barney, who was touting the stock at the same time he was advising the company on deals. Should that sort of conflict be ended? Should we not let financial analysts also be deal-makers?

OXLEY: Yes, I do. And as...

HUNT: Would you put a legislative end to that?

OXLEY: No, I would not. And as a matter of fact, we had a news conference in February, in which we had the SROs, we had NASDAQ, NESD and New York Stock Exchange, along with Harvey Pitt, announcing our initiative. This is something that Chairman Baker, chairman of our Capital Markets Subcommittee, started way back early last year.

And I think this -- what they came up with, the SROs and the SEC, is exactly what you need. It has the flexibility to be dealt with when situations change, without having it rigidly in the statute.

We were advised, both by Chairman Greenspan and by Chairman Pitt, not to write some of the stuff in stone in the federal statute because it's so difficult to change it once you get it in there. And I'm very much in favor of that approach. NOVAK: Mr. Chairman, the Senate Democratic bill was thought not to have much support until this latest rash of scandals. It's now -- it came out of committee with a 17-4 vote. Reportedly 80 out of 100 senators support it. Quite a bit different than your bill, which passed the House 334-90.

Is this going to be a real problem to get these two bills together and come up with a compromise measure?

OXLEY: Bob, I don't think the differences are all as great as perhaps the folks in the media want it to be.

As far as a prediction of 80 votes, that came from Senator Daschle. I have no idea where that came from. But there's still a lot of work to be done on that bill. It still has to go to the floor. Under the Senate procedures, there are a lot of different things that could happen with that bill.

But I am prepared to go to conference with the Senate. I think we can get a compromise. I've talked with Senator Corzine, I've talked with Senator Gramm, I've talked with other senators on the committee, along with Senator Sarbanes.

I think that all of us would be better served -- that is, the country and the markets -- if the Congress can come together with a compromise bill that can be signed by the president and really make a statement.

The alternative would be not to have a bill. Harvey Pitt, of course, has, at least on the accounting side, his proposal of setting up an independent accounting standards or independent oversight board that is not unlike what we did in the House.

But, yes, I think that at the end of the day we're going to have a bill, and I think it will be a fair bill that won't impede the marketplace but will get the job done.

NOVAK: Chairman Pitt we've mentioned several times in this interview. He is under terrific criticism, particularly on the Democratic side; some criticism on the Republican side. Do you think he's being made a fall guy, or do you have some questions about his performance at the SEC?

OXLEY: I have no question about his performance at the SEC, Bob. I can't think of anybody I would trust more than Harvey Pitt. He has a great intellect. He is of the highest integrity. Even his major opponents concede that, that it's difficult in this town, as you know, to come in from the private sector and take over a responsible position like the SEC, but he has done it very well.

And by the way, didn't get a whole lot of help from our Senate friends when the president proposed two Republicans to sit on the SEC, and they weren't confirmed, weren't even given the opportunity for a vote, and the president had to appoint them during a recess.

HUNT: But the problem, Mr. Chairman, some people have with Harvey Pitt -- no one questions his integrity -- it's a conflict of interests. For instance, on the accounting board, he appointed two accountants, active accountants. Don't you think...

OXLEY: Well, that's two of nine...

HUNT: Yes, but why should there be any?

OXLEY: Well, I would think if you're going to have a board overlooking the accounting industry, you ought to have at least somebody who knows a little bit about accounting. Now, the closest I ever got...

HUNT: A lot of former accountants...

OXLEY: Well, the closest I ever got to accounting was that my fraternity house was right across the street from the accounting department. Do you think I ought to be on the accounting oversight board?

I mean, obviously, you need some people who know what they're talking about. You're not going to put -- I think if you fill it full of a bunch of lawyers, you've got major problems. So I don't think that's unreasonable at all.

NOVAK: One more question before we take another break.

Mr. Chairman, the Enron task force at the Justice Department caused (ph) the indictment of Arthur Andersen, effectively shut it, ruining that firm. Do you think they should have, instead, gone after Enron rather than making the legal attack on Arthur Andersen? Was that a mistake?

OXLEY: Well, it was a mistake, in my estimation, indicting an entire company, Bob, yes. But they are not ignoring Enron; that is continuing, and I suspect that there will be indictments for some Enron top officials.

But I really do think that individuals are responsible in almost every case. How can you indict a company of some 80,000 people?

And that was really the death nail of Arthur Andersen. Here was a chance for -- perhaps, to show that you can have some redemption here. And to put Paul Volcker in that situation and then basically cut his legs out from under him I thought was just outrageous.

NOVAK: We have to take another break. And when we come back, we will have the Big Question.

(COMMERCIAL BREAK)

NOVAK: The Big Question for Chairman Michael Oxley:

Mr. Chairman, the Congress is investigating Martha Stewart, who had a $240,000 stock sale. Do you think that is a waste of congressional effort, when you have multi-billion-dollar accounting scandals to worry about? OXLEY: Well, I'm not involved in that, Bob.

NOVAK: I know you're not, but I'm asking anyway.

OXLEY: I have to question whether she was really an insider. I mean, the issue is, you are an insider, if you are a corporate officer or somebody -- but she was a stock owner.

NOVAK: What does Congress investigate, then?

OXLEY: I don't know. I think we've got, frankly, other things to do, including the WorldCom. And our committee will be having a hearing on July 8, in which we'll have the CEO -- the former CEO there and also the analysts. Really, this is a big deal, $4 billion in overstatements. So we're going to be very aggressive on that.

HUNT: Chairman Oxley, your Republican colleague, Mike Castle of Delaware, acknowledged the other day that these corporate scandals are not going to go away in the public's mind. It might even hurt Republicans in the November elections. Is Mike Castle right?

OXLEY: Mike Castle's a great guy and former governor, and he could be right, unless we fall down on the job of correcting the situation, but we're not going to fall down on the job.

We passed our legislation in the House. I think we'll have a compromise with the Senate. The president will be on board. The SEC is being very aggressive in this. I suspect that, by November, there will be some folks that will be punished rather severely. And I think that should take care of it.

We'll get the job done.

HUNT: Mike Oxley, thank you very much for being with us.

We're going to take a short break, and Bob Novak and I will be back with a comment or two.

(COMMERCIAL BREAK)

HUNT: Bob, Mike Oxley is a nice guy, but I think Mike Castle might be closer to the mark on this. This is an issue that's not going to go away. There is a pervasive corporate corruption, at least if you read the newspapers. And I think Republicans are increasingly worried.

NOVAK: I think Republicans have a dilemma. They don't want to let this be an opportunity for anti-corporate people to bash business with a lot of government regulation. On the other hand, they don't want to appear to be soft on the corruptors on something that really bothers the public and especially bothers investors.

HUNT: You know, the best system ever invented is the free market, but not an unfettered free market. And just as Franklin Roosevelt saved capitalism from itself in the '30s, some regulation is necessary today, Bob. NOVAK: Well, there are some people who always want regulation and never really like the free market. I would say that Chairman Oxley is one of the best chairmen, after we had chairmen like Wright Patman and Fernand St. Germain and Henry Gonzalez. I think that American business can be happy that they got somebody who understands the market, Al.

I'm Robert Novak.

HUNT: And I'm Al Hunt.

Coming up at 7:00 p.m. Eastern on "CAPITAL GANG," the WorldCom scandal and CEO corruption; the president calls for a change of Palestinian leadership in the Middle East; and the debate on the Pledge of Allegiance.

NOVAK: That's all for now. Thanks for joining us.

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