The problem with Reed is simple -- he wants no constraints over accounting rules and guidelines and has labored behind closed doors to penetrate and sabotage the efforts of the FASB. One of the most revealing incidents occurred during Reed's participation on the Business Roundtable in the late 1980s. The Business Roundtable gave him the task of reining in the FASB, and he attempted to do this in a clever, subtle manner. Rather than any public denunciations of the board, Reed wanted to appoint some of the trustees on the Financial Accounting Foundation, the entity that appoints members to the Financial Accounting Standards Board and in essence control its agenda. Proof is found in a memo he wrote others on the Business Roundtable:

 

"[Rholan] Larson and [Jack] Ruffle [former chairmen of the Financial Accounting Foundation] were genuinely concerned about the business community's growing lack of confidence in the FASB and seemed interested in exploring possible steps that might be taken to address the concerns. They mentioned that the FAF is currently reviewing the standard-setting process and the responsibilities of the Board of Trustees. They also expressed an interest in having a representative of the Business Roundtable fill a trustee-at-large position.

 

"The FAF representatives commented that the FASB and FAF have received mixed signals regarding the FASB's recent performance. While CEOs have been very negative, CFOs and controllers who work more closely with the FASB have been more supportive of the FASB's actions. This lack of a consistent posture within the business community, while somewhat understandable, is undermining the Task Force's efforts and the Roundtable members should get their CFOs and controllers on board with our views on the FASB."

 

Notice that Reed desired to gain control over the Financial Accounting Foundation, and that he admonished Roundtable members to command their CFOs to criticize the FASB and thereby increase the negative PR campaign against the board. (As an example of this PR campaign, see Business Week's "Corporate America is Fed Up with FASB" in its April 21, 1997 issue.)

 

This behind-the-scenes approach to gaining some degree of control of the Financial Accounting Foundation, coupled with escalating public disparagement of the board, paid dividends over the next decade. Tom Jones, a Citicorp vice president, became a trustee of the Financial Accounting Foundation, the foundation changed its operating rules to require a super majority by FASB to effect a new accounting rule, the board caved in on stock-based compensation, and it refused to reappoint Arthur Northrop to another term on FASB, presumably because of his pro-investor views with respect to accounting issues.

 

This strategy continued until the 1990s, when SEC chief Arthur Levitt started resisting these pro-manager, anti-investor actions and required a shake-up and reconstitution of the Financial Accounting Foundation. Unfortunately, Levitt's actions came too late to prevent the inevitable consequences of Reed's strategy -- the accounting scandals du jour of 2001 and 2002.

 

Reed has opposed accounting reforms over the last two decades, and I have no evidence that he has changed this vision. Given the accounting scandals at AOL Time Warner, Arizona Baptist Foundation, Boston Chicken, Cendant, Enron, Global Crossing, JDS Uniphase, Lernout & Hauspie, Livenet, Medaphis, Peregrine Systems, Phar Mor, Qwest, Rite Aid, Sunbeam, Tyco, Waste Management, and WorldCom, do we really want a person to lead the New York Stock Exchange that helped to create the culture that fostered these scandals?

 

I submit that the exchange made a mistake in appointing Reed chairman even on an interim basis. If the NYSE directors favor accounting reforms, I suggest they remove Reed as soon as possible. If they fail to do that, then we shall know that they approve of the accounting maneuvers by the managers and directors of AOL Time Warner, Arizona Baptist Foundation, Boston Chicken, Cendant, Enron, Global Crossing, JDS Uniphase, Lernout & Hauspie, Livenet, Medaphis, Peregrine Systems, Phar Mor, Qwest, Rite Aid, Sunbeam, Tyco, Waste Management, and WorldCom.

 

John Reed has to go.