February 5, 2002
Pension Chiefs Want Head of the S.E.C. to Withdraw
By LESLIE WAYNE
ASHINGTON, Feb. 4 — Managers for pension funds that lost $1.5 billion from their Enron (news/quote) investments called on the chairman of the Securities and Exchange Commission, Harvey L. Pitt, today to recuse himself from all decisions that affect Enron and its auditor, Arthur Andersen, a former client.

Officials from the Council of Institutional Investors, which represents 250 funds, also expressed concern at a news briefing this morning about the Bush administration's intention to fill two of the vacant seats on the five-member S.E.C. with two representatives of the accounting industry, Paul Atkins, a partner in PricewaterhouseCoopers, and Cynthia Glassman of Ernst & Young.

The council members manage $2 trillion in pension assets for public and university employees. The organization has a history of shareholder activism, and many members are suing Enron.

Before being appointed to the S.E.C., Mr. Pitt was a well-known lawyer in Washington who had all the Big Five accounting firms, including Andersen, as clients. He also represented the American Institute of Certified Public Accountants, the trade and self-regulatory group.

The fund managers said Mr. Pitt was too close to the accounting industry and could not objectively investigate Enron and its auditor. The group has also criticized a proposal by Mr. Pitt to change the regulation of accounting as too favorable to the industry.

"One of the people who lobbied the hardest against auditor independence is now the chairman of the S.E.C.," a lawyer for the New Hampshire Retirement System, Alan Cleveland, said. "Now two of the five commissioners will be from the industry. No more will the accounting industry have to do end runs around the S.E.C. They will be the S.E.C."

A spokeswoman for the S.E.C., Christi Harlan, said Mr. Pitt fell under government guidelines that prohibited him from dealing with Enron and Andersen matters for a year after taking office, in his case in August. Ms. Harlan said that the S.E.C. investigation into Enron might take more than a year to complete and that Mr. Pitt would be free to participate in decisions that affect the companies at the end of his first year as chairman, in six months.

"We are under the one-year rule," Ms. Harlan said. "Beyond that, we are not making any decisions one way or another."

Beyond their criticism of Mr. Pitt, members of the pension group used the Enron debacle to renew their calls for a series of reforms to make corporations more accountable to shareholders. In addition, one council member, the A.F.L.-C.I.O. pension fund, called on the S.E.C. to investigate whether Enron's directors should be allowed to join other corporate boards.

In a letter to the S.E.C., the union fund, which held 3.1 million Enron shares, said the Enron failure "demonstrates the Enron directors' substantial unfitness" to oversee a corporation.

"The burden now lays," the letter said, "on each individual director to demonstrate why they should not be barred."

The letter was also sent to many of the 20 other corporations where those directors sit on boards, including Lockheed Martin, Motorola (news/quote) and Owens Corning (news/quote).

"Investors in those public corporations where these individuals continue to serve as directors," the letter continued, "cannot assume that they have an effective fiduciary safeguarding their interests."

The associate general counsel for the union, Damon A. Silvers, said that the letters were sent to the companies about two weeks ago, but that there had been no response.

Among the council's other proposals are greater auditor independence from the corporations whose financial statements they review, more outside directors and fewer insiders on boards and eliminating financial conflicts among directors.

"We want Enron to be a catalyst for reforms that are broad and deep," George Philip, executive director of the New York State Teacher's Retirement System, said. "It is not enough to hold hearings or tweak existing regulations. It is our members who bear the largest losses from corporate and accounting fraud."



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