Bush's Plan Underwhelms Experts
By ALAN CLENDENNING 07/10/2002 14:40:28 EST
NEW YORK (AP) - President Bush's speech on how to clean up big business didn't raise expectations that any large government crackdown on corporate wrongdoing is imminent, major investors and business experts said Wednesday.
Bush's proposals - ranging from stiffer white-collar crime penalties to better disclosure of executive compensation - essentially implore publicly traded companies to do the right thing with few requirements for compliance, they said.
"In terms of real substance of what will solve the problems, it doesn't get nearly as far as I would have hoped," said John Bogle, founder and former chairman of The Vanguard Group of mutual funds, which manages $590 billion in assets for 17 million clients.
Bush's address Tuesday to a sympathetic crowd of Wall Street luminaries generally received a positive reception from corporate America.
But some of his proposals have been around for years, and critics warned that others won't stop the kind of shenanigans that have made headlines for months.
Among Bush's key proposals is a recommended doubling, to 10 years, of the maximum prison term for mail fraud and wire fraud, charges often used to prosecute corporate crime.
Bogle and others say the increased penalty won't mean much unless federal prosecutors take on more prominent white-collar crime cases, and make sure those convicted do hard time in tough prisons.
"The first time a white-collar criminal goes to Attica is the last time you'll have any corporate crime," Bogle said. "But I imagine five years in Attica is just as bad as 10."
And while Bush wants to require shareholder approval for stock option plans that enrich company executives and to improve compensation disclosure, experts were disappointed that he didn't call for options to be treated as a business expense in the company books.
"Managers lie in the financial reports to boost earnings, which in turn increases the amount of stock options they receive," said Ed Ketz, an accounting professor at Pennsylvania State University's Smeal College of Business.
Expensing options would allow investors to better understand the practice "and why there is a conflict of interest in the managers' choosing corporate accounting policies and then obtaining compensation based on those policies," Ketz said.
Top officials of TIAA-CREF, the pension and education fund manager with $270 billion under management, were pleased that Bush wants stronger oversight of the accounting industry.
But they were disappointed that the president gave only qualified support to a bipartisan accounting bill to create an independent private body with authority to discipline auditors and establish auditing and ethics rules.
"He's saying nice things about the bill but he's not endorsing it so far," said Ken Bertsch, TIAA-CREF's director of corporate governance.
Some corporate governance experts gave Bush credit for using his bully pulpit to advance reforms few lawmakers cared about before Enron imploded last year and was followed by a wave of other corporate scandals.
Bush should get high marks for trying to improve corporate audits and prosecute executives who managed to get rich before the economy soured, resulting in huge losses for investors and massive layoffs, said Charles Elson, director of the Center for Corporate Governance at the University of Delaware.
"Six months ago, I would be surprised that any politician would articulate the term corporate governance in a speech," he said. "These are reforms corporate government advocates have been calling for for years."
But the average investor wants quick results, and it probably won't be clear for months - if not longer - whether Bush's proposals will help clean up the nation's publicly traded companies, said Charles Snow, the dean of Yeshiva University's business school.
"The fact that the president delivered such a speech is a step in the right direction in that he understands that there is anxiety today on the part of Joe investor," he said. "But he'll still be wary of putting his money in capital markets, where the history as of late has been quite sordid."
siliconinvestor.com |
