I was at Safeway last week when a group of shoppers mistook me for Harvey Pitt, Chairman of the Securities & Exchange Commission. Pitt is heavyset, middle-aged, with dark hair, and a beard. You know, a heartthrob. Mind you, I am younger, with a goatee, and I wore a Hawaiian shirt and sunglasses, rather than a dark suit and horn-rims.
Since moving to Arizona, I have been mistaken for Dylan Thomas, John Belushi, Buddha, and Elvis. It was refreshing to be confused with someone living, but these people weren’t fans. They wanted to complain. And then they threw fruit at me. (Lucky for me this encounter didn’t take place at my previous stop, Home Depot.)
Harvey and I go back to his days as a partner of Fried, Frank, Harris, Shriver & Jacobson. Senator Schumer referred to Pitt at his confirmation hearings as a “Zeus” in the field of securities regulation. I represented shareholders in securities class actions, so it wasn’t like we were buddies, but I thought I could help us both, so I wrote him:
You probably don’t remember me. I’m the guy who got thrown out of your firm’s offices in 1988 for stealing legal pads and FedEx airbills while attending a deposition. As I was reeling in panic from the security guard’s pepper spray, I thought I saw you — out of the corner of my uninfected eye — close a conference room door. If that was you, I’m sure you noticed that, minus the ugly red splotches covering my face from the spray, we could almost be brothers.
We both know what ails the markets, and it’s not just a slow economy. The system has been poisoned, and it’s not worth arguing whether there were ten bad companies or a hundred. Leading former CEOs of moribund companies off in handcuffs or watching the media and Congress conduct corporate witch-hunts won’t do it. In fact, those things undermine confidence in the market because with each new detail, investors ask, “How much more is there that I don’t know?”
Obviously, you had to change the original game plan of reducing the amount of securities regulation. It’s clear, though, that your heart just isn’t in it. You are too smart to be satisfied with half measures, and we’ve both been pelted with fruit enough to know it’s not working.
You have two choices, Harve: keep plodding along until you disappear into obscurity or become well-known enough to be made fun of by Jay Leno, or pull an Earl Warren and become The Regulator Guy of the modern stock market.
I say, go for it! Announce immediately that the SEC is beginning rulemaking for the following:
(1) Closing down the window between the quarter- and year-end and filing dates for financial statements. It is currently 60 days after the quarter and 90 days after the end of the year. Change it to 15 and 30.
(2) Closing down the window between when insiders can sell shares in their companies and when they have to disclose it. Get behind those crazy proposals that cut the time from months down to a couple days.
(3) Making those auditors earn their millions. Instead of that form letter they attach to a company’s annual report, they have to write an audit report, describing the audit, pointing out risk factors, and documenting all disagreements. (As a bonus, make them immune from civil suits based on matters they identified as risk factors.)
(4) Developing a short-form financial statement in addition to the current required forms. Investors need something easy that they can trust. The short-form should be one page, and include earnings, debt structure, cash flow, and officer-and-director compensation.
The Administration will claim you’re a lose cannon. Companies will hit the roof over all these additional filing requirements. Auditors will gripe about the extra work and the uncertainty.
Then you know what will happen? You will become a hero. The Left will love you for your independence, and for using your expertise to make companies and auditors issue trustworthy, understandable reports. The Right will love you because, as the mid-term elections near, the Administration will be claiming the high ground on restoring investor confidence. Let the Democrats grandstand about the evils of wealth and the excesses of former CEOs. The Republicans are the ones willing to fix the system and declare it safe for investors to return to the marketplace.
Finally, you will become a hero to business. The first two proposals merely bring the rules up to date with technology. The short-form won’t require additional disclosures — just a “Cliff Notes” for investors. This package also focuses on the future, and it takes the heat off a lot of CEOs who are trying to do a good job but would prefer if everyone glossed over their past peccadilloes. The auditors will end up thanking you. Not only will these reports demonstrate that the audit firms are actually earning their millions, but they can probably run the meter a little more in the process of preparing them.
If I’m wrong, resort to Plan B: hop a flight to Phoenix, hang out at my condo, pretend you’re me at Ancala Country Club, and work on your golf. These are my ideas, so I’ll take your place in Washington. I’m thirteen years younger than you, but if this plan fails and I have to take the heat, the experience should age me in no time.
P.S. If you don’t do any of this and you’re still on good terms with Chuck Schumer, ask him if he can make throwing fruit into a felony, for both our sakes.