By Jay Dismukes

Though he’s not certain anyone foresaw the corporate scandal train before it left Enron station, former President Bill Clinton believes the record of his administration, and, perhaps more significantly, that of Arthur Levitt and Larry Summers, at the very least demonstrates a clear objective to avoid the colossal wreck that was to come.

“It’s pretty hard to say we were blind to potential abuse and we tried to do nothing about it,” Clinton said last month in Manhattan. “…I don’t think anyone in the White House knew the extent of earnings overstatements or could have. I don’t want to claim that we foresaw all the Enrons, WorldComs, all that stuff, but we knew that the regulatory climate was inadequate—that’s the only point I’m trying to make—and that changes ought to be made.”

As the special guest speaker of an April 15 conference titled “Restoring Corporate Integrity and Public Trust,” held at the Plaza Hotel, Clinton told a packed audience of business leaders and members of the press that those changes revolved tightly around former Securities and Exchange Commission Chairman Levitt and then Treasury Secretary Summers. When asked by the event interviewer Marvin Kalb, of the Joan Shorenstein Center on the Press, Politics and Public Policy, whether his administration sensed the pending tide of corporate malfeasance, Clinton harkened back to Levitt’s efforts in 2000 to separate accounting and consulting services, which have since taken on greater significance and been heavily scrutinized by federal and state regulators.

“I thought Arthur Levitt was pretty good. He began to sound the warnings the last two years we were in office,” Clinton said. “He began to really worry that somehow the accounting was not straight and that might have something to do with the conflicts between consulting and accounting.”

Calling it a matter of record, Clinton said that when Levitt tried to stop the conflicts, “(Sen.) Phil Gramm (R-Texas) tried to tear his head off and gut the budget of the SEC.”

According to the 42nd president of the United States, Summers faced a similar fate by Congressional Republican leaders when he tried to choke off offshore tax shelter abuses and money laundering.

A Roll of the Dice

Looking back, Clinton said he deeply regrets not taking a stronger stance on Levitt’s attempts to completely bifurcate the accounting and consulting functions for public companies, an initiative that ultimately lay dormant until passage of the Sarbanes-Oxley Act of 2002. In what he described as a “roll of the dice,” Clinton said that had he known the extent of earnings misstatements, he might have been more willing to play all his cards.

“When they threatened us with an appropriation rider essentially to gut the SEC, the only thing I can think of retrospectively that we could have done…is we could have said, ‘Okay, shut us down.’ We could have called their bluff; we could have called Phil Gramm’s bluff,” he said. “I think I missed the opportunity to say, ‘Please do it.’…I think it’s a risk we should have taken. In retrospect, that’s the one thing I regretted.”

The gamble could have resulted in several scenarios, including the temporary closure of the Commission, more exposure and possible victory for Levitt in what he labeled “an essentially private fight,” or a return to “square one,” according to Clinton.

Further defending his administration, the former president also drew attention to his decisions to veto the bankruptcy reform bill of 1999–2000 as well as the securities litigation reform bill of 1998, though acknowledging that members of his own party obviously joined forces with Republicans to override the veto. Clinton said his concern from the bill sprang largely from the inability of those who supported it to answer questions about the standard that would govern whether meritorious lawsuits could be filed.

Though the degree of fraudulent accounting may have escaped him, Clinton said there were other red flags in the mid to late ’90s that gave his administration cause for alarm. Those included overcapacity in the telecom sector, overvaluation of dot-com companies and the NASDAQ, in which he believes the valuation of companies at that time were based on the anticipated resale of the company, rather than the company itself. But the buoyancy of the economy helped keep these issues under wraps and shielded questionable business practices, he observed.

The Boom Years and Beyond

When asked whether his administration did not in fact enjoy an artificial boom and should have taken greater care to prevent the economic downturn and loss of public confidence in the marketplace, Clinton repeatedly took exception to the Republican Party’s position and referred to his record.

“There is a real tendency here where every time one of these things happens, to go in hand-wringing, trying to find some evil demon that is at the root of the problem and pretend that it all could have been different,” he said. “It was not a fluke economy. We went from deficits to surpluses. We kept a strong investment climate. We kept interest rates down. We invested in technology and biomedical research and the long-term elements of a healthy economy.

“…So this argument…is convenient for them (Republican Party) politically and is consistent with everything they say, which is that if something bad happened after I left office, it was my fault. If something happened on the last day I was in office that was good, it was because of something President (Ronald) Reagan did in January of 1981.”

Clinton said he believes passage of the Sarbanes-Oxley Act was a step in the right direction to restoring investor confidence and kick-starting the economy. However, if he were still in office, he would throw out President Bush’s current proposed tax cut and freeze the high-end-income piece of the 2001 tax cut. He would further convene a group of economists to determine what sort of stimulus is currently needed and would consider extending tax relief that would expire after two years to average income taxpayers to help them pay down their credit card debt and encourage spending. He also would try to lure foreign investors back to the market.

Clinton said he is optimistic about the efficacy of the Public Company Accounting Oversight Board and is hopeful that there will be greater attempts to ensure that members of a board of directors are fulfilling their fiduciary obligations. He also finds real-time filing of corporate earnings and public notification of executive stock sales particularly appealing.

Though his comments at times were highly critical of the Republican Party, Clinton noted that the current economic environment and surrounding public company scandals need to be kept in perspective.

“While Senator Gramm and I had a lot of fights in Congress in the last couple of years I was there, I do think it’s worth pointing out that our capital markets on the whole work very well,” he said. “Most people in these businesses are honest and most people who do the accounting are honest…The entire economy has been hurt…because of a relatively small number of people.”