Two Harveys May Bang Walls Over SEC Rules

Editor's Note: Jim Seymour's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Feb. 14 on RealMoney.

I'd say the Securities and Exchange Commission's proposal to tighten the timeline reporting requirements for both insider trading and for companies to file quarterly and annual reports will be the closest thing to a lock among the agency's newly proposed reforms.

The former will cruise through the public hearings process and vote by the SEC on the current tide of presumed bad faith by corporate executives; the latter, because it isn't that hard to accomplish, and sounds like a self-evident good thing.

But neither likely will prove to be the more important change, a title reserved, I think, for the commission's revision of its list of significant events that have to be disclosed in 8-Ks, which -- if this passes -- will now include "changes in ratings agency decisions, obligations that are not currently disclosed and lock-out periods affecting employee stock-ownership plans."

Uhh ... do you hear footsteps from the halls of Enron there?

Broadly speaking, new SEC Chairman Harvey Pitt wants more disclosure, sooner, and fewer off balance sheet items floating around. All good, all worth fighting for. Maybe he'll get most, perhaps even all, of his proposals through in something like their present form. I hope so. But expect to see lobbyists by the truckload fighting to keep those off balance sheet options open. Even if they are precisely the opposite of what Pitt wants, and of what we need: a clearer, more open look at how a company's really doing.

We've known these proposals were coming, and their general form, for some time. But USA Today had new details Wednesday morning, and I sat at my desk around 4 a.m. -- my God, I love early morning "quiet time"! -- reading their coverage and thinking about the tortured path some of these proposals are going to have to go through.

I think the real story -- and, at least so far, a little-reported one -- is going to be not the details of these worthy proposals, and their day-to-day progress toward adoption, but the titanic battles coming up behind the scenes between the Two Harveys.

As you know, former SEC general counsel Harvey Pitt now sits in the chairman's seat. It's a bully pulpit, and you can expect Republican Pitt, who served, and chafed, as SEC general counsel from 1975 through 1978, will push changes across the board. Given the way SEC general counsels have traditionally tried to set the commission's agenda -- in a system that exemplifies the "strong chairman" model -- and usually failed, it's fair to say that Pitt now sees a chance not only to leave his mark, but also to correct mistakes of the past -- especially, mistakes of the late 1970s.

Hence these reform proposals. Beyond those, Pitt has quite a laundry list of other things he wants to change, high among them dissipating the antipathy that has grown up between the commission and American business. Nothing out of school here: He's talked about his ideas, frequently, with press and politicians.

But now we're about to get another Harvey on the commission, Harvey Goldschmid, whom many expect to serve as a Democratic foil to Pitt. Goldschmid is also a former SEC general counsel (from 1998 to 1999), has his own little agenda, and comes down on the opposite side of many issues with Pitt.

• Pitt, for example, has said he wants to dump Regulation Fair Disclosure, which he says protects corporate execs from liability "by telling nothing to no one"; Goldschmid wrote Reg FD for the commission.

• Pitt led the coalition of accounting firms (which he represented, after his earlier SEC service) that reached a compromise with former SEC chairman Arthur Levitt: Levitt wanted to end the practice of accounting firms offering both auditing services and also consulting services to big companies, but Pitt successfully fought that off.

• Pitt favored, and testified in favor of, the 1995 Private Securities Litigation Reform Act, which reduced executives' potential risk in fraud cases; Goldschmid went the other way, including backing President Bill Clinton's futile veto of the bill.

Etc.

I don't expect to see knock-down, drag-out battles from the dais between these two; that's not their style. But I do expect we'll eventually learn of immense backroom battles between them, trying to reach compromises on what comes up in public sessions and what comes to a vote. These compromises inevitably will shorten both Pitt's agenda and his leash -- and he won't like that.

Just could be that the upcoming Two Harveys wars at the SEC will be the best show in Washington.

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Anytime public officials get into jihads over that magical word "reform," we have to remember how broadly, and sometimes how differently, it is defined.

One of my favorite memories of the Texas Legislature -- a comedy club par excellence, which convenes every other year across town from my office in Austin -- was the time two decades ago when "reform" was the theme of a wildly acrimonious session. Both sides, of course, claimed they were with the angels in their definitions of the word; needless to say, their definitions were very different.

The battle came to a peak one day when the member of the House holding down the microphone drew his many listeners' attention to the balcony surrounding the House floor, the place tourists usually sit to watch the show.

On his cue, in the balcony a squad of seven young women from a Texas junior college stood up, in their short-skirts-and-shiny-tops cheerleader outfits, turned their backs to the assembled legislators and flipped up the back of their skirts.

A large capital letter was neatly attached to each woman's derriere; from left to right, they spelled out R-E-E-F-O-R-M.

Like the making of sausage, the making of public policy is not always a pretty thing to watch. But sometimes it can be very funny. Your cue, Chairman Pitt.