When the Enron scandal unfolded, the Securites and Exchange Commission rejoiced in the public interest for finding corruption on Wall Street. To address the concerns, Mr. Harvey L. Pitt, SEC Chairman, formed the Public Company Accounting Oversight Board. Unfortunately he opted for a poor process for choosing members of the board.

According to the New York Times:

It appears that in considering candidates, Mr. Pitt [S.E.C. chairman] had his chief accountant, Robert K. Herdman, evaluate any potential problems [with potential members of the new Public Company Accounting Oversight Board] and reach a conclusion [about any conflicts of interest]. If Mr. Herdman concluded there was no problem, that was where things ended.

That was a mistake. Even without the political brawl that appointment process had become, every member of the S.E.C. deserved to know what issues could be raised, and to have the time to review them. But no commissioners were told that William L. Webster, now the chosen chairman of the board, had served as the chairman of the audit committee of a company with significant problems. From the public record, the conclusion that his role was not disqualifying may have been an acceptable one. But it was a decision for the commissioners to make with full knowledge.

Because Mr. Pitt utilized an opaque, secretive process to examine candidates and problems that might arise, the SEC was unable to appropriately respond to public scrutiny. This vulnerability negatively impacted the SEC‘s ability to carry out other necessary tasks.

Deciding when to use the right process for the situation — at the right place and the right time — challenges all organizations. If you need help designing or modifying an important process within your organization, contact Slaughter Development today!

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