[Congressional Record Volume 148, Number 89 (Friday, June 28, 2002)]
[Senate]
[Pages S6300-S6302]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      PUBLIC COMPANY ACCOUNTING REFORM AND INVESTOR PROTECTION ACT

  Ms. STABENOW. Mr. President, I rise today to speak about important 
legislation that we will be considering as soon as we return from the 
Fourth of July recess.
  In February of this year, the banking committee, of which the Chair 
is a member--and I appreciate the opportunity to serve with him--began 
a series of 10 hearings touching at ways to strengthen our accounting 
system, protect investors, and make needed reforms at the SEC.
  We all understand every day the growing need to be able to do that.
  Our hearings didn't necessarily make the headlines with subpoenas 
sent to Ken Lay of Enron or Andrew Fastow, but the work that we did I 
believe was incredibly important, very thorough and very thoughtful.
  Chairman Sarbanes, our chairman of the committee, is to be commended 
for his impressive leadership and thoughtfulness and hard work on this 
subject. At the end of the day, it is due to his commitment to doing 
this carefully and due to the commitment of my colleagues on the 
committee who followed panel after panel of witnesses closely--from 
former SEC Chairs, to Paul Volcker, to consumer groups, to well-
respected academics--that we now have before us a bill that will 
ultimately make the biggest difference for investors and for the 
markets. We critically need this.

  In March, in the midst of our marathon of hearings, I was very 
pleased to join with Senator Dodd and Senator

[[Page S6301]]

Corzine in the introduction of the Investor Confidence in Public 
Accountability Act of 2002. Our bill was, I believe, a good beginning, 
an excellent way to begin to tackle the problems about which we were 
learning. It was measured. It was strong.
  I thank Chairman Sarbanes for including many of the provisions of our 
bill in the ultimate bill that has been reported to the floor of the 
Senate.
  This is an excellent bill. We need only to look at the vote in the 
committee. It passed 17 to 4. It has strong bipartisan support. I hope 
that support will continue on the floor of the Senate as we take up 
this legislation in the coming weeks.
  But it also has its detractors. There are some, of course, who do not 
like the legislation. They make outlandish comments about Government 
takeovers of the accounting industry. But that is not the bill for 
which I voted. It is not the bill for which Chairman Sarbanes voted. 
That is not the bill for which Senator Enzi, the Senate's very own 
accountant, voted.
  I would like to explain briefly some of the key components of this 
bill and why they make sense.
  In this legislation, we create a strong new regulatory public 
oversight board to establish and enforce accounting standards, quality 
control, and ethics standards for public companies. The evidence 
indicates it is no longer enough for the industry to police itself. Few 
people would contest that now.
  That actually has been in debate over the last several years--two 
different philosophies, one coming in with a new administration in the 
House of Representatives back in the mid-1990s. I remember debating 
this with former Speaker Newt Gingrich and efforts to deregulate our 
industries and our oversight, with the idea there would be self-
regulation and oversight.
  We know now that there needs to be public accountability, 
transparency, openness. But there needs to be public accountability if 
there is going do be integrity in these systems and if people are going 
to be willing to invest.
  The oversight board we have placed in this legislation would be 
independently funded by fees on public companies, therefore providing 
us insulation from the politics of the time. It would conduct regular 
inspections of accounting firms. The five-member board would have two 
people with accounting backgrounds and a balanced approach to the 
board.
  We also establish new restrictions on the mixing of consulting 
services and auditing services, which are very important. We have seen, 
unfortunately, specific examples of where the mixing of these two 
services has created devastating results for people.
  There has long been a concern that auditors may be tempted to 
overlook some questionable accounting practices in order not to lose 
lucrative consulting contracts from the companies they audit. This bill 
seeks to address that problem without simply banning all consulting 
services. I think it is an important and reasonable and balanced 
approach.
  Some services would be banned--bookkeeping, financial systems design, 
investment advice, human resources consulting--while others would have 
to be approved by the company's audit committee, such as tax services.
  Of course, auditing companies would be able to offer any consulting 
services to a company they were not presently auditing.

  We also ensure auditor independence, which is so critical.
  Another concern raised in our 10 hearings was that sometimes, over 
time, auditors develop too cozy a relationship with the companies they 
audit. They become less critical and more accommodating. We addressed 
this in the bill we reported from committee.
  The bill before us simply says that accounting firms would be 
required to rotate the leading auditor and review partners of an audit 
after 5 consecutive years of auditing a public company. It does not 
force companies to find a new auditor, it just simply requires a 
rotation of the auditor. Some have feared that this would be too 
extreme, and the bill is sensitive to those concerns. But we believe it 
is important that we ensure auditor independence.
  Our bill also sets up an internal corporate whistleblower mechanism. 
This is one particular component of the bill about which I am 
especially pleased. The bill includes an amendment I offered regarding 
establishing corporate whistleblower mechanisms. I want to ensure that 
the audit committees of public companies establish a way for 
confidential, anonymous submissions of statements by employees 
regarding questionable accounting procedures.
  With Enron and other scandals, people in the company knew there were 
problems but had nowhere to turn. They were trapped in a corporate 
culture which squashed dissent. My amendment guarantees that there will 
be a designated way to report problems to people who are in a position 
to do something about it, and it seeks to protect those employees who 
are simply acting in the best interests of their companies and their 
companies' investors.
  I am glad to say that not only do I have the support of such people 
as my chairman but others, such as the Financial Services Roundtable, 
have weighed in to support this very important amendment.
  Guarantees of new levels of corporate responsibility are also an 
important part of this legislation. A key component of the bill I am 
pleased to support is the new level of corporate responsibility 
required under this bill.
  Under the bill that will be before us, audit committees must now be 
completely independent of management and will be responsible for the 
appointment, compensation, and oversight of the auditors. The bill also 
ensures that during a blackout period, when companies are prohibited 
from selling stock, corporate leaders will also be barred from trading 
the stock.
  Perhaps most significantly of all, this Congress has an opportunity 
to tell CEOs and CFOs that they must certify the accuracy of financial 
reports and will have to forfeit bonuses up to 12 months after an 
earnings misstatement which was brought about by material noncompliance 
with securities laws.
  This is essential. We have had too many corporate leaders walk away 
from companies they have destroyed, with tens--and sometimes hundreds--
of millions of dollars in their pocket while their employees find their 
pensions drained, their jobs gone, and their dreams destroyed.
  This is a strong, comprehensive bill. It does not include every 
reform that we need, but I would like to take a moment to highlight 
another piece of legislation that I hope we will incorporate into the 
bill in its final passage. That is Senator Leahy's Corporate and 
Criminal Fraud Accountability Act.
  I am proud, also, to be a cosponsor of this important legislation 
because I think it is a very sound bill and gets to some of the serious 
reforms that corporate America needs to face. Among other things, it 
makes it a crime to destroy or conceal records with the intent to 
obstruct or influence a Federal investigation, such as an SEC 
examination into accounting malfeasance.
  It also amends our Federal bankruptcy law to make penalties relating 
to the violation of certain Federal and State securities laws 
nondischargeable.
  I am very happy to say the bill provides legal protections again for 
corporate whistleblowers, employees who report to regulators or 
Congress or their supervisors. I believe all of these provisions are 
important and will improve accountability for our country.
  Prior to the committee vote on this bill, there was an emerging theme 
in the media that momentum was fading for strong reform. Powerful 
special interests, a few congressional opponents of reform were 
winning, it seemed. But all of that has changed. Unfortunately, the 
scandals we have seen emerging have reminded us once again of the 
importance to act. We have seen the stunning revelation regarding 
WorldCom and the billions of dollars of earnings misrepresented, the 
17,000 jobs that will be lost; 17,000 people who did nothing wrong--
they got up every day, they went to work, they did their jobs, they 
worked hard--now are suffering the consequences of a few people at the 
top who thought it better to cook the books than to represent their 
employees and their investors.
  All of this, of course, came on the heels of Enron and Global 
Crossing and Tyco and Adelphia and Xerox. We need now only to look to 
the ongoing weaknesses in our capital markets to see why the 17-to-4 
vote in our committee should not have been so surprising.

[[Page S6302]]

  Investors are concerned. They are angry, and rightfully so. They 
wonder, can I trust the information companies are giving to me? How do 
we know if our stocks are valued appropriately? Which company is next?
  What we are doing in the Senate is nothing less than trying to ensure 
the long-term viability of our capitalist system. We have a system that 
is the strongest and the best in the world, but something is broken. We 
need to act. A corporate culture of earnings mismanagement and 
gamesmanship, unfortunately, has prevailed in some quarters. It is 
casting a pall over too many other publicly traded companies. That is 
not right, and it has to stop.
  We know the majority of companies have integrity. They are doing the 
right thing. They are providing accurate information. Our corporate 
leaders who are acting responsibly are the most concerned about what is 
happening. Too many honest, hard-working people at good, solid 
companies are indirectly suffering due to the malfeasance of a few 
greedy people.
  As we move ahead, I look forward to working with my colleagues on 
both sides of the aisle, and with our Presiding Officer, to make sure 
what we did in committee can be done on the floor, and as quickly as 
possible.
  Republicans such as the Senator from Wyoming, Mike Enzi, have shown 
true leadership in joining with the chairman and 15 others on the 
committee. This is the first step. We need a strong, good debate on 
this bill and an overwhelming vote to send a message to investors, to 
pension holders, to hard-working employees and companies everywhere, to 
those corporate executives who are working hard and doing the right 
thing, that we are united and that we are serious about making sure 
their interests are protected. We will still have to reconcile this 
with a much, unfortunately, more modest version passed in the House, 
and we will have to send it to the President.
  I hope the President will join us in the strongest possible bill. It 
is incredibly important that we help bring back the integrity and 
confidence so important in our markets. We are the greatest country in 
the world. We have had the greatest capitalist system, but there are 
serious problems today and serious questions. We have the 
responsibility to act in a way that will stabilize the economy, give 
investors confidence, let employees know that their pensions will be 
protected and their hard work will be recognized for the future, and 
that we will do the kinds of things that will allow us to continue the 
strongest economy in the world.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BYRD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Nelson of Nebraska). Without objection, it 
is so ordered.
  Mr. BYRD. Mr. President, is the Senate conducting morning business at 
this point?
  The PRESIDING OFFICER. That is correct.
  Mr. BYRD. Are Senators permitted to speak therein?
  The PRESIDING OFFICER. They are, for up to 10 minutes each.
  Mr. BYRD. I thank the Chair. I ask unanimous consent that I may speak 
as long as I may desire.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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