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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (1883)	3/7/2002 1:41:15 PM
From: stockman_scott	Read Replies (1) \| Respond to of 3602

Bush Wants New Rules For CEOs By Dan Ackman Forbes.com Thursday March 7, 8:46 am Eastern Time In the wake of the Enron scandal, President George Bush will announce today a plan said to improve corporate disclosure, add to the oversight of accountants and boost penalties for malfeasance by executives. The administration is pitching the plan as needed to protect investors. But with details unavailable, it is unclear as to what extent the new proposals are different from existing law. It is also not clear whether the administration will propose removing some of the roadblocks to the enforcement of the huge volume of existing laws--roadblocks that have grown more formidable in recent years. The centerpiece of the plan includes a requirement that CEOs personally attest to the accuracy of their financial statements; rules making top executives forfeit bonuses and other compensation if those statements prove false and mandates that executives disclose their dealings in company stock within two business days. In extreme cases, executives could be barred from serving as officers or directors for other publicly held corporations. The plan would expand the list of so-called "significant events" requiring disclosure in between quarterly reports. It would also direct the Securities and Exchange Commission to ensure that a company provides investors with a true picture of its value without obscuring the details in footnotes and dense language. The plan, which Bush will unveil in a speech today, is part of a package of reforms in response to the collapse of Enron , a company with deep and long ties to the administration that filed for bankruptcy in Dec. 2001. In addition to mending some possible political injuries, the new proposals are geared to restoring investor confidence in U.S. capital markets following not just Enron but the widespread collapse of once-highly touted Internet and telecommunications companies. None of the proposals appear to modify or reverse the recent law changes that have made it more difficult to pursue civil lawsuits against companies and executives who break them--as the president has long stated his suspicion of investor lawsuits and the lawyers who file them. Indeed, administration officials have been quoted as saying they do not want to encourage lawsuits. The administration plan also does not appear to go as far as some of the proposed regulatory changes already working their way through Congress or the SEC. The idea that CEOs should be accountable for their company's financial disclosure, for instance, is not new. The question has long been how that responsibility could be enforced and to what extent executives could rely on accountants, lawyers and others who create and process information in complex, far-flung organizations. The real problem may be the complexity of existing corporate structures and procedural roadblocks to the enforcement of existing rules. Executives can already be forced to pay damages well in excess of the pay they received--assuming the SEC or a private investor can prove a case against them. In addition to modified disclosure rules, the administration will propose an independent regulatory board to oversee accounting firms as well as new restrictions on services that the firms can offer along with their audit services. The widespread selling of a variety of consulting services by accounting firms is believed to compromise the integrity of supposedly independent audits on which the public is entitled to rely. The proposal is the administration's most packaged response to the business and accounting irregularities uncovered since the collapse of the Houston-based energy-trading firm. Bush's endorsement of overhauling corporate governance and accounting oversight--and the political environment Enron created-- increases the likelihood that some significant changes will result from the Enron affair. A working group including Treasury Secretary Paul O'Neill and Federal Reserve Chairman Alan Greenspan developed the recommendations, the White House indicated. Parts of the plan would need new legislation. Others could be done within the SEC's existing regulatory authority. In recent days, O'Neill, a former CEO of Alcoa (nyse:AA), has been front and center--pressing his old colleagues to be more accountable for their actions. The recommendations do not include a proposal he made earlier that companies not be permitted to fully indemnify directors and officers against fraud lawsuits. It was not clear what penalties would apply to corporate officials who verify financial statements if those statements prove false later on. In the Enron case, the company admitted in Nov. 2001, a few weeks prior to the bankruptcy, that its financial statements over a nearly five-year period were wrong. But executives as a rule can only be held liable civilly if they are proved to have had some knowledge of the falsity. Criminal penalties require proof of more specific knowledge. The problem with Enron and other failures hardly seems an absence of law. The system was in place--but it failed. This failure was not one of regulation, but of a laxity in the corporate culture, aided by the absence of will or a strong hand to right matters when bad actors get out of line.