MOYERS: Joining me now is the man just about everyone wanted to be the new public watchdog, the man to keep an eye on the books. Everyone, that is, except the industry's friends in Washington.
John Biggs earned a Ph.D. in economics in Washington University in St. Louis, and began his career in the financial industry in 1958.
For nearly a decade he's been the chairman and CEO of one of the company's leading providers of financial services, TIAA CREF, the pension system for more than two and a half million people primarily in the education field. He and his colleagues manage $250 billion of investments in retirement funds. Welcome to NOW.
MOYERS: What does it say to you, John Biggs, that the chairman of the SEC withheld from the other four commissioners information about the former director of the CIA and FBI, who both of us know, that this former director of the FBI and CIA had been head of an audit committee of a company that is being investigated for fraud, and that the outside auditors came to his audit committee, told him there's a problem and they dismissed the outside auditors. They didn't want to know the truth.
JOHN BIGGS: Well, first off, the sequence of things, if the story we now understand it, was that the audit committee of which he chaired then agreed to fire the auditor, that really sends a terrible message to the serious professionals out in the field. We are telling them all you've got to say no, you've got to be tough...
MOYERS: You've got to tell the truth.
JOHN BIGGS: And tell the truth. Do the right thing and...
MOYERS: But if you tell the truth you get fired.
JOHN BIGGS: And if you tell the truth at least the audit committee ought to protect you. And in this case it didn't. And that seems to be the bare facts of the story.
What I would have thought if I had been chairman of that audit committee is these guys are telling me the financial records are in chaotic condition. I hope I would have been a little uneasy about the CEO who turns out to have quite a record, apparently, and there are real questions about fraud in this case.
But to know, okay, I have a heavy burden on me, I'm going to have to go after my people that I'm friendly with. But I've got to do the investigation. I've got to go find out what's going on. And they didn't do that. It appears from what we read so far.
I think Bill Webster knew that was a very serious issue, and he did the right thing in disclosing it...
MOYERS: To Chairman Pitt.
JOHN BIGGS: To Chairman Pitt and to Bob Herdman the chief accountant.
MOYERS: Should Chairman Pitt have told the other commissioners that he knew?
JOHN BIGGS: I think without question he had.... For him to say that this is not a problem, for Bob Herdman, the Chief Accountant, to say this is not a problem - amazes me. I mean, I just don't understand how they could possibly have come to that conclusion other than they were under so much pressure to make this appointment they were just dismissing...
MOYERS: Where do you think the impression -- Where do you think that pressure came from to make this appointment?
JOHN BIGGS: Well, I think it may not have been directly on the SEC commissioner's, on Harvey Pitt in particular. But it certainly came on him in some indirect sense.
I think the accounting lobbyists had read my testimony favoring stock option expensing and more independence, rules for independence. And they thought that was going to be a problem for the accounting profession.
And I think they used all their political chips.
MOYERS: Having withheld this vital information from the other commissioners, having told you that he supported you and then he didn't support you, being so clearly the representative of the industry at the SEC, can Harvey Pitt survive?
JOHN BIGGS: Well, it seems extraordinary that he can. We don't know the full story of who actually called him, but I would have guessed that he met with the chairman of the House Financial Services Committee, where the ...
MOYERS: Congressman Oxley who is...
JOHN BIGGS: Who is very much influenced by the accounting profession.
MOYERS: Yes, he's one of the biggest recipients of money from the accounting industry. I mean, you can't escape the impression.
JOHN BIGGS: No. Well, I've talked to people, senior people in the accounting industry, and they've sort of shame-facedly said to me, yes, we did oppose you, and we did it, and we're sorry about that, but we don't want the independent standards that you have at TIAA CREF spreading to the whole industry.
MOYERS: They do not want you being as concerned for the investor as for the accounting firm.
JOHN BIGGS: I'd really love to get the accounting...the leadership of the accounting profession to say the first step in any policy decision is what's best for the investors.
They tend to be focused more on their own profession and on the preparers of statements. That is, the companies that are issuing them.
They pay the bills, so it's a natural conflict. So I think that says something, well, we need public regulation to make sure that they put the investors first.
MOYERS: You're a circumspect man, a principled man ... What has happened?
JOHN BIGGS:Well, I think the accounting industry won, let's call it a Pyrrhic victory. They won this battle, but the war they should have their eye on is reestablishing their reputation. The principal asset they have as firms is their reputation.
I mean, don't they get the message at seeing Arthur Andersen absolutely destroyed by people who did not do the right thing down in Houston? People in their firm didn't do the right thing.
I mean, in Houston at least the audit committee was kept in the dark by the auditor. The auditors never came to the audit committee and said we've got the financial records are in chaotic, or we have this terrific problem with these special purpose entities.
In the case of this company, the auditor...dealing with Judge Webster, the auditors did the right thing. They came to the audit committee and said, hey, we can't audit the statements because the internal controls are so bad.
MOYERS: What is the right thing for Harvey Pitt to do now?
JOHN BIGGS: Well, you know, I don't want to join the chorus, everyone feeling he should resign. In many ways it seems like it's a political issue. But I think he has lost the confidence of his commission and I think he's lost the confidence of the American public. And I think at this point probably he should certainly be considering resignation.
And I don't know an investment person in the country that I've talked with, and I've talked with a lot, who doesn't feel that he shouldn't resign.
MOYERS: It is a tragedy because you can go to Washington today and want to do well and yet you run right into the stranglehold that big money has over the political process, over the regulatory agencies. I mean, don't you think we've reached some kind of crisis in democratic governance when money has the power to do what it's doing now?
JOHN BIGGS: You know, I've been reading about it in the newspaper and hearing about it, this is my first real experience with it, and it's appalling.
MOYERS: This is not the first time the accounting industry has refused to put the public interest first. I mean, there were major accounting scandals back in the early seventies, as you may remember. But industry convinced congress to back off on self regulation.
We had the savings and loan scandals in the 1980s costing taxpayers billions of dollars, but the industry got off virtually free. I mean, how do the big accounting firms get away with it?
JOHN BIGGS:Well, they have a lot of money to spend on the congressional races, and that's one way. Let me say my own personal view of what's happened and my observation on the accounting industry.
I was first chief financial officer of a major company back in the early seventies. And the accounting profession was held in enormously high repute. The senior partners were people in any town in America that you really admired and respected. They have gone on a growth binge since then expanding into huge financial conglomerates, 110,000 employees...
MOYERS: At one firm?
JOHN BIGGS:At one firm, professional employees. How do you manage that kind of a business? And most of them don't do accounting work. Most of them don't do auditing work. They're in employee benefit advisory work, there was a broker/dealer set up by one firm.
Anything that's financial services they saw as part of their business. They've done that over the last 20 years. The status in our society of the professional auditor has declined steadily during that period, and yet they keep arguing that they have to do all this in order to attract good people to the field.
They can attract good people to the field if they really make it clear that they honor and respect the ethical auditor who is doing the right thing, is a professional, may not be a great business getter, he may not be good at joining country clubs and bringing in clients. But he knows auditing, knows accounting, and does the job and does it with real pride.
MOYERS: Even if Harvey Pitt resigns, we've seen the stranglehold that the industry has on Michael Oxley, the chairman of the finances committee in the house and the system in Washington. How can the little guy out there have any hope, even if Harvey Pitt resigns?
JOHN BIGGS: The real way that the investor, small investor, can play a role, is to vote and to challenge their local congressman and to care about these issues.
I think we've got their attention because so many of them saw huge losses in their 401K plans. I mean, I am just sick when I look at what's happened to our participants at TIAA CREF. We've done well, we urged them to diversify, but many did not, because they were carried away like most Americans with the boom of the nineties which turned out to be partially at least fraudulent. So they've simply got to express themselves, they can express themselves in voting, they can speak up, they can squawk. And I think maybe now they have an incentive to do it. If I had to work two more years just because of this which many people will probably have to do, I'd be mad as hell.
MOYERS: Thank you for being here, thank you for speaking up.
JOHN BIGGS: Thank you, Bill.