DOCUMENTS

SOURCES ET COMPLEMENTS

   

(Says accounting frauds have shaken investor confidence)

THE WHITE HOUSE Office of the Press Secretary (New York, New York) July 9, 2002

REMARKS BY THE PRESIDENT ON CORPORATE RESPONSIBILITY Regent Wall Street Hotel New York

THE PRESIDENT: Thank you all. Thank you very much for that warm welcome. I'm pleased to be back in New York City. New York City is a unique symbol of America's creativity and character and resilience. In the last 10 months, New Yorkers have shown a watching world the true spirit of your city. (Applause.) A spirit that honors the loss, remembers its heroes, and goes forward with determination and with confidence.

People of this city are writing one of the greatest chapters in our nation's history, and all Americans are proud of New York. (Applause.)

I've come to the financial capital of the world to speak of a serious challenge to our financial markets, and to the confidence on which they rest. The misdeeds now being uncovered in some quarters of corporate America are threatening the financial well-being of many workers and many investors. At this moment, America's greatest economic need is higher ethical standards -- standards enforced by strict laws and upheld by responsible business leaders.

The lure of heady profits of the late 1990s spawned abuses and excesses. With strict enforcement and higher ethical standards, we must usher in a new era of integrity in corporate America.

I want to thank Bill for his introduction. There's nothing like being recycled. (Laughter and applause.) But thanks for having me. I'm honored to meet your family and Uncle Jack. (Laughter and applause.)

I appreciate very much Secretary [of the Treasury Paul] O'Neill and Secretary [of Commerce Donald] Evans traveling with me today. I want to thank the members of the New York delegation, Senators Schumer and Clinton, as well as Congressman Fossella and Congressman Rangel. I appreciate so very much the Mayor -- my friend, the Mayor [of New York], for being here to greet me as I came in on the chopper. Thank you, Mr. Mayor, and thanks for the great job you're doing for New York. (Applause.)

I'm honored that Cardinal Egan is here. And I appreciate so very much seeing John Whitehead, the Chairman of the Lower Manhattan Development Corporation. And thank you all for coming, as well.

The American economy -- our economy -- is built on confidence. The conviction that our free enterprise system will continue to be the most powerful and most promising in the world. That confidence is well placed. After all, American technology is the most advanced in the world. Our universities attract the talent of the world. Our workers and ranchers and farmers can compete with anyone in the world. Our society rewards hard work and honest ambition, bringing people to our shores from all around the world who share those values. The American economy is the most creative and enterprising and productive system ever devised. (Applause.)

We can be confident because America is taking every necessary step to fight and win the war on terror. We are reorganizing the federal government to protect the homeland. We are hunting down the terrorists who seek to sow chaos. My commitment, and the commitment of our government, is total. We will not relent until the cold-blooded killers are found, disrupted, and defeated. (Applause.)

We can be confident because of the amazing achievements of American workers and entrepreneurs. In spite of all that happened last year, from the economic slowdown to the terrorist attack, worker productivity has grown by 4.2 percent over the last four quarters. In the first quarter of 2002, the economy grew at an annual rate exceeding six percent. Though there's much work left to do, American workers have defied the pessimists and laid the foundation for a sustained recovery.

We can be confident because we're pursuing pro-growth reforms in Washington, D.C. Last year we passed the biggest tax cut in a generation, which encouraged job creation and boosted consumer spending at just the right time. For the sake of long-term growth, I'm asking Congress to make the tax reductions permanent. I'm asking Congress to join me to promote free trade, which will open new markets and create better jobs and spur innovation. I ask Congress to work with me to pass a terrorism insurance bill, to give companies the security they need to expand and to build. (Applause.) And I will insist on -- and, if need be, enforce -- discipline in federal spending, so we can meet our national priorities without undermining our economy.

We have much to be confident about in America. Yet our economy and our country need one more kind of confidence -- confidence in the character and conduct of all of our business leaders. The American economy today is rising, while faith in the fundamental integrity of American business leaders is being undermined. Nearly every week brings better economic news, and a discovery of fraud and scandal -- problems long in the making, but now coming to light.

We've learned of some business leaders obstructing justice, and misleading clients, falsifying records, business executives breaching the trust and abusing power. We've learned of CEOs earning tens of millions of dollars in bonuses just before their companies go bankrupt, leaving employees and retirees and investors to suffer. The business pages of American newspapers should not read like a scandal sheet.

The vast majority of businessmen and women are honest. They do right by their employees and their shareholders. They do not cut ethical corners, and their work helps create an economy, which is the envy of the world.

Yet high-profile acts of deception have shaken people's trust. Too many corporations seem disconnected from the values of our country. These scandals have hurt the reputations of many good and honest companies. They have hurt the stock market. And worst of all, they are hurting millions of people who depend on the integrity of businesses for their livelihood and their retirement, for their peace of mind and their financial well-being.

When abuses like this begin to surface in the corporate world, it is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against fraud and corruption. All investment is an act of faith, and faith is earned by integrity. In the long run, there's no capitalism without conscience; there is no wealth without character.

And so again today I'm calling for a new ethic of personal responsibility in the business community; an ethic that will increase investor confidence, will make employees proud of their companies, and again, regain the trust of the American people.

Our nation's most respected business leaders -- including many gathered here today -- take this ethic very seriously. The Business Roundtable, the New York Stock Exchange, the NASDAQ have all proposed guidelines to improve corporate conduct and transparency. These include requirements that independent directors compose a majority of a company's board; that all members of audit, nominating, and compensation committees be independent; and that all stock option plans be approved by the shareholders. I call on all the stock markets to adopt these sensible reforms -- these common-sense reforms -- as soon as possible.

Self-regulation is important, but it's not enough. Government cannot remove risk from investment -- I know that -- or chance from the market. But government can do more to promote transparency and ensure that risks are honest. And government can ensure that those who breach the trust of the American people are punished.

Bold, well-considered reforms should demand integrity, without stifling innovation and economic growth. From the antitrust laws of the 19th century to the S&L reforms of recent times, America has tackled financial problems when they appeared. The actions I'm proposing follow in this tradition, and should be welcomed by every honest company in America.

First, we will use the full weight of the law to expose and root out corruption. My administration will do everything in our power to end the days of cooking the books, shading the truth, and breaking our laws.

Today, by executive order, I create a new Corporate Fraud Task Force, headed by the Deputy Attorney General, which will target major accounting fraud and other criminal activity in corporate finance. The task force will function as a financial crimes SWAT team, overseeing the investigation of corporate abusers and bringing them to account.

I'm also proposing tough new criminal penalties for corporate fraud. This legislation would double the maximum prison terms for those convicted of financial fraud from five to 10 years. Defrauding investors is a serious offense, and the punishment must be as serious as the crime. I ask Congress to strengthen the ability of SEC investigators to temporarily freeze improper payments to corporate executives, and to strengthen laws that prevent the destruction of corporate documents in order to hide crimes. Second, we're moving corporate accounting out of the shadows, so the investing public will have a true and fair and timely picture of assets and liabilities and income of publicly traded companies. Greater transparency will expose bad companies and, just as importantly, protect the reputations of the good ones.

To expose corporate corruption, I asked Congress four months ago for funding to place 100 new enforcement personnel in the SEC. And I call on Congress to act quickly on this request. Today I announce my administration is asking Congress for an additional $100 million in the coming year to give the SEC the officers and the technology it needs to enforce the law. If more scandals are hiding in corporate America, we must find and expose them now, so we can begin rebuilding the confidence of our people and the momentum of our markets.

I've also proposed a 10-point Accountability Plan for American Business, designed to provide better information to shareholders, set clear responsibility for corporate officers, and develop a stronger, more independent auditing system. This plan is ensuring that the SEC takes aggressive and affirmative action.

Corporate officers who benefit from false accounting statements should forfeit all money gained by their fraud. An executive whose compensation is tied to his company's performance makes more money when his company does well -- that's fine, and that's fair when the accounting is above-board. Yet when a company uses deception -- deception accounting to hide reality, executives should lose all their compensation -- all their compensation -- gained by the deceit.

Corporate leaders who violate the public trust should never be given that trust again. The SEC should be able to punish corporate leaders who are convicted of abusing their powers by banning them from ever serving again as officers or directors of a publicly-held corporation. If an executive is guilty of outright fraud, resignation is not enough. Only a ban on serving at the top of another company will protect other shareholders and employees.

My accountability plan also requires CEOs [corporate chief executive officers] to personally vouch for their firms' annual financial statements. Currently, a CEO signs a nominal certificate, and does so merely on behalf of the company. In the future, the signature of the CEO should also be his or her personal certification of the veracity and fairness of the financial disclosures. When you sign a statement, you're pledging your word, and you should stand behind it.

And because the shareholders of America need confidence in financial disclosures right away, the SEC has ordered the leaders of nearly a thousand large public companies to certify that the financial information they submitted in the last year was fair and it was accurate. I've also called on the SEC to adopt new rules to ensure that auditors will be independent and not compromised by conflicts of interest.

The House of Representatives has passed needed legislation to encourage transparency and accountability in American businesses. The Senate also needs to act quickly and responsibly, so I can sign a good bill into law.

Third, my administration will guard the interests of small investor and pension holders. More than 80 million Americans own stock, and many of them are new to the market. Buying stock gives them an opportunity to build wealth over the long-term, and this is the very kind of responsible investment we must promote in America. To encourage stock ownership, we must make sure that analysts give honest advice, and pension plans treat workers fairly.

Stock analysts should be trusted advisors, not salesmen with a hidden agenda. We must prevent analysts from touting weak companies because they happen to be clients of their own firm for underwriting or merger advice. This is a flat-out conflict of interest, and we'll aggressively enforce new SEC rules against this practice -- rules which take effect today.

And the stock markets should make sure that the advice analysts give, and the terms they use, have real meaning to investors. "Buy" should not be the only word in an analyst's vocabulary. And they should never say "hold" when they really mean "sell."

Small investors should also not have to have the deck stacked against them when it comes to managing their own retirement funds. My pension reform proposal would treat corporate executives the same as workers during so-called "blackout periods," when employees are prohibited from trading in their accounts. What's fair for the workers is fair for the bosses. (Applause.)

My reform proposal gives workers quarterly information about their investments. It expands workers' access to sound investment advice, and allows them to diversify out of company stock. The House has passed these measures; I urge the Senate to do the same.

Tougher laws and stricter requirements will help -- it will help. Yet, ultimately, the ethics of American business depend on the conscience of America's business leaders. We need men and women of character, who know the difference between ambition and destructive greed, between justified risk and irresponsibility, between enterprise and fraud.

Our schools of business must be principled teachers of right and wrong, and not surrender to moral confusion and relativism. Our leaders of business must set high and clear expectations of conduct, demonstrated by their own conduct. Responsible business leaders do not jump ship during hard times. Responsible leaders do not collect huge bonus packages when the value of their company dramatically declines. Responsible leaders do not take home tens of millions of dollars in compensation as their companies prepare to file for bankruptcy, devastating the holdings of their investors.

Everyone in a company should live up to high standards. But the burden of leadership rightly belongs to the chief executive officer. CEOs set the ethical direction for their companies. They set a moral tone by the decisions they make, the respect they show their employees, and their willingness to be held accountable for their actions. They set a moral tone by showing their disapproval of other executives who bring discredit to the business world.

And one of the principal ways that CEOs set an ethical tone is through their compensation. The pay package sends a clear signal whether a business leader is committed to teamwork or personal enrichment. It tells you whether his principal goal is the creation of wealth for shareholders, or the accumulation of wealth for himself.

The SEC currently requires the annual disclosure of a CEO's compensation. But that information is often buried in long proxy statement -- proxy statements, and seldom seen -- seldom seen -- by shareholders. I challenge every CEO in America to describe in the company's annual report -- prominently, and in plain English -- details of his or her compensation package, including salary and bonus and benefits. And the CEO, in that report, should also explain why his or her compensation package is in the best interest of the company he serves.

Those who sit on corporate boards have responsibilities. I urge board members to check the quality of their company's financial statements; to ask tough questions about accounting methods; to demand that audit firms are not beholden to the CEO; and to make sure the compensation for senior executives squares with reality and common sense. And I challenge compensation committees to put an end to all company loans to corporate officers.

Shareholders also need to make their voices heard. They should demand an attentive and active board of directors. They should demand truly independent directors. They should demand that compensation committees reward long-term success, not failure. Shareholders should demand accountability not just in bad times, but especially in boom times, when accountability frequently breaks down. Shareholders are a company's most important constituency, and they should act like it.

The 1990s was a decade of tremendous economic growth. As we're now learning, it was also a decade when the promise of rapid profits allowed the seeds of scandal to spring up. A lot of money was made, but too often standards were tossed aside. Yet the American system of enterprise has not failed us. Some dishonest individuals have failed our system. Now comes the urgent work of enforcement and reform, driven by a new ethic of responsibility.

We will show that markets can be both dynamic and honest, that lasting wealth and prosperity are built on a foundation of integrity. By reasserting the best values of our country, we will reclaim the promise of our economy.

Leaders in this room help give the free enterprise system an ethical compass, and the nation respects you for that. We need that influence now more than ever. I want to thank you for helping to restore the people's trust in American business. I want to thank you for your love of the country. And I want to thank you for giving me the chance to come and address you today. May God bless you all. (Applause.)

USA Economie sur Internet

US Business Management

Gouvernement d'entreprise Corporate governance

Gouvernance d'entreprise sur Internet

Droit économique sur Internet

Le crime sur Internet

LA CORRUPTION sur Internet

Criminalité économique: pays

Droits nationaux sur Internet

Paradis fiscaux

   

Issued in advance of the president's July 9 Wall Street speech on corporate responsibility, the fact sheet outlines Bush administration enforcement actions taken in the wake of recent corporate accounting scandals along with new proposals intended to make it easier to expose and punish acts of corruption. Following is the fact sheet: The White House Office of the Press Secretary July 9, 2002

Summary: A New Ethic of Corporate Responsibility

Today in New York President Bush will call for a new ethic of responsibility in America's corporate community. The President wants to expose and punish acts of corruption, move corporate accounting out of the shadows, and protect small investors and pension holders. The President will unveil tough new criminal penalties and enforcement provisions to punish those who refuse to play by the rules and threaten to undermine the integrity of our financial markets:

-- The President will sign an Executive Order creating a Corporate Fraud Task Force to provide direction for investigations and prosecutions of criminal activity. The Task Force will provide oversight and enable improved inter-agency coordination of civil and criminal investigations.

-- The President proposes doubling the maximum prison term for mail fraud and wire fraud to ten years (mail fraud and wire fraud statutes are often used in cases involving corporate wrongdoing).

-- The President calls on the U.S. Sentencing Commission to enhance prison time for criminal fraud when committed by corporate officers and directors.

-- The President proposes strengthening laws that criminalize document shredding and other forms of obstruction of justice.

-- The President proposes new provisions to strengthen the ability of the Securities and Exchange Commission (SEC) to freeze improper payments to corporate executives while a company is under investigation.

-- The President calls on public companies' compensation committees to prevent corporate officers from receiving loans from their companies.

-- The President challenges CEOs [corporate chief executive officers] to comply with the spirit of existing disclosure rules by explaining how their compensation packages are in the best interests of their companies' shareholders, and describing in plain English in their companies' annual reports every detail of their compensation packages.

-- The President urges Congress to take immediate action to pass the $20 million funding increase requested earlier this year so that the SEC can hire 100 new enforcement officers. The President also urges Congress to provide an additional $100 million in FY 2003 to enable the SEC to hire more enforcement officers and provide them with state-of-the-art technology. The new funds -- combined with the President's proposed FY 2003 budget -- represent more than a 20 percent increase for the SEC in FY 2003.

-- The President calls on the nation's stock markets to require that a majority of a company's directors be truly independent so that they have no material relationship with the company. The President also calls for all members of a company's audit committee, nominating committee, and compensation committee to be truly independent.

-- The President calls on the nation's stock markets to require listed companies to receive shareholder approval for all stock option plans.

The Administration's Strong Record of Enforcement & Reform

-- DOJ [U.S. Department of Justice] prosecuted Arthur Andersen for obstruction of justice and the firm was found guilty.

-- On June 27, the SEC issued an order requiring CEOs and CFOs [chief financial officers] of the largest companies (947 companies, each with annual revenues in excess of $1.2 billion) to personally re-certify the accuracy, fairness and completeness of their disclosures through the prior fiscal year.

-- Since the President unveiled his reform agenda on March 7, the SEC has sought the disgorgement of compensation and trading profits, including bonuses and stock options, in four new cases -- equal to the number of cases that were brought during all of last year.

-- The SEC has already sought 54 officer and director bars in court proceedings in the first eight months of this fiscal year -- 40 percent more than were sought in fiscal year 2000.

-- On June 20 the SEC proposed strong new rules to create an independent regulatory board to oversee the accounting industry and see that the accounting profession is held to the highest ethical standards.

-- The SEC has proposed new rules that require companies to disclose their "critical accounting" choices in their public filings.

-- The SEC has proposed new rules will to accelerate the filing deadlines for quarterly reports (45 days to 30 days) and annual reports (90 days to 60 days).

-- The SEC has proposed rules to more than triple the list of items that must be reported between filing periods -- including insider sales of stock, loans made to executives by companies, departures of the company's executives and gain or loss of material customers.

-- The SEC has proposed rules to require corporate executives to personally vouch for their companies' public disclosures.

-- The SEC has proposed rules to require that most corporate director and officer transactions in their companies' securities and other financial instruments must be filed within two business days. Currently, corporate insiders are not required to file reports of their activities in their company's stock for periods of up to 410 days.

-- The SEC is seeking to require that all public companies have independent audit committees that will have the sole responsibility of hiring, firing and retaining independent auditors.

-- The SEC is drafting rules that will ban all non-audit services, unless approved in advance by an independent audit committee of the board of directors. The SEC is also seeking to improve disclosure rules so that investors can have a better understanding of the fees paid to auditing firms and their affiliates.

The President's Comprehensive Corporate Reform Agenda

Today's tough new enforcement initiatives build on the 10-point reform plan the President announced in March. The President has an aggressive corporate reform agenda:

-- Expose and punish acts of corruption;

-- Hold corporate officers more accountable;

-- Protect small investors and pension holders;

-- Move corporate accounting out of the shadows;

-- Develop a stronger and more independent corporate audit system; and

-- Provide better information to investors.

Exposing and Punishing Acts of Corruption -- Holding Corporate Officers More Accountable

The Administration will use the full weight of the law to expose and punish corruption. Corporate officers hold offices of high trust and they should face stiffer penalties when they break the law. Corporate leaders who violate the public trust should never be given that trust again. The President proposes to:

-- Double the maximum prison term for mail fraud and wire fraud to ten years, and increase the prison time served for fraud committed by corporate leaders.

-- Create a new Corporate Fraud Task Force to increase DOJ's ability to oversee and coordinate the investigation and prosecution of fraud and related criminal activity.

-- Empower the SEC to freeze improper payments to corporate executives while a company is under investigation.

-- End the practice of allowing corporate officers to receive loans from their companies.

-- Prevent CEOs or other officers from profiting from erroneous financial statements.

-- Ensure that CEOs or other officers who clearly abuse their power lose their right to serve in any corporate leadership positions.

-- Require corporate leaders to tell the public promptly whenever they buy or sell company stock for personal gain.

-- Strengthen laws that criminalize document shredding and other forms of obstruction of justice.

-- Challenge CEOs in America to fully comply with the spirit of existing SEC rules by explaining prominently and in clear English why their compensation packages are in the best interests of their companies.

-- Strengthen the SEC by seeking an additional $100 million in FY 2003 for the SEC to help hire more enforcement agents and improve other prosecutorial activities.

Moving Corporate Accounting out of the Shadows

The investing public needs a true, fair, timely and accurate picture of the assets, liabilities and income of publicly traded companies. Greater transparency will expose bad companies and protect the reputations of good ones. Firms must attract investment by demonstrating their strengths, not by hiding their weaknesses.

-- An independent regulatory board should ensure that the accounting profession is held to the highest ethical standards.

-- CEOs should personally vouch for the veracity, timeliness, and fairness of their companies' public disclosures, including their financial statements.

-- Firms' accounting systems should be compared with best practices, not simply against minimum standards.

Protecting Small Investors and Pension Holders & Improving Investor Information

More than 80 million Americans own stock and many of them are new to the market. Buying stock gives Americans the opportunity to build wealth over the long term and create brighter futures for themselves and their families. To encourage stock ownership, we must make sure that analysts give honest advice, based on honest accounting, and honest and timely information. In addition, employees should be afforded protections in the administration of their 401(K) plans so that they have meaningful information, flexibility and confidence in their holdings.

-- Financial statements, annual reports, and other critical disclosure documents must be written in a straightforward, easily understandable form.

-- Each investor should have prompt access to critical information.

-- Each investor should have quarterly access to the information needed to judge a firm's financial performance, condition, and risks.

-- Investors should have complete confidence in the independence and integrity of companies' auditors.

-- The authors of accounting standards must be responsive to the needs of investors.

-- Employees should be able to sell their company's stock and diversify into other investment options after 3 years of holding stock in their 401(K) plans.

-- Employees should be able to get sound advice on investing and diversifying their 401(K) accounts.

 

(Pledges vigorous prosecutions of corporate criminals)  U.S. Treasury Secretary Paul O'Neill is urging Congress to move quickly to approve legislation to toughen the penalties for corporate fraud. Following is the text of O'Neill's speech as prepared for delivery:

TREASURY SECRETARY PAUL H. O'NEILL REMARKS TO THE U.S. CHAMBER OF COMMERCE

"REBUILDING TRUST IN CORPORATE AMERICA" WASHINGTON, D.C.

Good afternoon. Thank you for your kind introduction, Tom (Donahue, Chief Executive Officer of the U.S. Chamber of Commerce).

The United States economy today is the strongest and most resilient in the world, and the strongest and most resilient of any economy in history.

Our economy surged at a 6.1 percent annual rate in the first quarter, the fastest pace in more than two years, and a phenomenal performance compared to forecasters' expectations. Although the second quarter is not likely to match the first, there are continuing signs of strength in this recovery. New home sales set a record level in May, consumer spending remains high, and there is evidence that non-defense capital goods investment rose in the second quarter, ending nearly a year and a half of declines.

The fundamentals are sound, with inflation low and productivity booming. Business profits are up, real wages are growing, and industrial production is increasing. In June, the number of new jobs went up for the second month in a row. Thanks in part to low interest rates and President Bush's tax cuts, this recovery is well underway. I continue to believe that by the end of this year we will see 3 to 3-1/2 percent growth.

Sometimes we forget, especially in Washington, that the foundation beneath our economic strength is the everyday hard work of business owners and employees throughout this country, many of whom are represented in this Chamber of Commerce. I'm talking about the kind of people who get up at the crack of dawn, unlock the store, and spend their days smiling at customers, (even when they'd rather throttle them). People who spend their nights and weekends minding the books, so they can pay their bills, make their payroll, and get their kids through school. People who have built this country, one product, one sale, and one job at a time.

These Americans, whether they work in a store, a factory, a farm, or an office tower, are investing their time in an honest day's work, building a future for themselves, their families and this country. And when they choose to put their hard-earned wages into shares of public companies, they are investing in this country again.

They are entrusting their savings -- the down payment for a first home, the money for an engagement ring and a wedding, college tuition, funds for a family vacation, their retirement, in short, their financial freedom and independence -- to corporate managers, whom they expect to be just as honest and straightforward. Our citizens trust that public companies will respect the savings in their care, working to maximize their return by creating real value.

Through much of the past decade, that trust paid well. New technologies boosted productivity, profits grew and the stock market soared. But amidst that exuberance, some people seem to have started believing that anything goes.

We've learned recently that certain corporate leaders, abetted by their auditors, violated the public's trust. In their greed and their gluttony, these crooks sacrificed the retirement years of teachers, truck drivers, nurses and farmers to enrich themselves.

Just as bad, they have disgraced the institutions that have allowed our nation to prosper, and brought shame on freedom itself.

I am furious. President Bush is furious. And we are going to make sure these thieves face consequences. These guys are not going to spend those stolen retirement years on balmy islands, swatting golf balls. The President has said that CEOs [chief executive officers] who cook the books will forfeit their ill-gotten gains, and they will go to jail.

Since the earliest days of these corporate scandals, President Bush has been advancing a reform agenda to find and punish corruption; hold corporate officers accountable; protect small investors; clean up accounting practices; strengthen the corporate audit system; and provide honest and accurate information to investors. The President's ten-point plan to improve corporate governance and disclosure, which he proposed on March 7, is now coming into place, thanks to aggressive leadership by Harvey Pitt and the SEC.

The plan requires that chief executives and chief financial officers personally certify the accuracy, timeliness and completeness of their companies' public disclosures and financial statements. In fact, Harvey Pitt has already written letters to the top 1,000 CEOs, requesting that they do just that -- personally review and re-certify their recent financial statements.

With the highest position in a company comes the highest responsibility, both to know what is going on in the firm, and to give investors an honest and accurate picture of the company's situation. Outside auditors should have to make the same independent certifications.

The SEC has also issued new rules to keep investors better informed. Companies will have to illustrate the impact of their accounting choices on their financial statements, and they will inform investors more quickly and clearly about significant events. The SEC has already put teeth in its policy that technical GAAP [Generally Accepted Accounting Principles] compliance is not the same as sufficient disclosure.

And for those who don't live up to the standards of honesty and accuracy, the President is insisting on stiff punishment, doubling the penalties for financial fraud. Under today's laws, a kid caught with a half a gram of marijuana gets a stiffer sentence than a corporate chief who steals millions from investors. That's not right.

The President requested months ago that Congress provide major increases in budget and personnel for the SEC, so our law enforcement officers can get the job done. Already, the SEC has doubled the rate of executive disgorgement cases this year over the rate in 2001. Working through the courts, the SEC has also stepped up bans of corrupt directors and officers, preventing them from serving in other companies.

Finally, the President made strong recommendations to align compensation plans, including stock options, with the long-term interest of stockholders. On television these days we see executives at scandal-ridden companies who pumped up share prices and cashed out their options before the axe fell. And then we see faithful employees and duped shareholders and pension funds left behind to gape at their losses. That's wrong, and it must not continue.

When I was at Alcoa I never sold a single share of Alcoa stock. I wanted my financial success and the company's success inextricably linked. Other executives should do the same. Stock options are not a short-term reward, they are a long-term incentive to do the right thing.

The President has called on the nation's stock markets to require that listed companies receive shareholder approval of all stock option plans. And he called on CEOs to explain how their compensation packages are in the best interest of shareholders. Well-informed shareholders, not the government, are in the right position to decide what compensation plan will best align management interests with the long-term interest of the shareholders.

We are improving the system on every front. The SEC's proposals are moving forward. The stock markets are beefing up corporate governance requirements for listed companies. And Congress is developing legislation to ensure corporations and their auditors meet standards for accuracy, honesty and timeliness. The House has already acted, and the Senate is working at this very moment.

We support the intentions of the Senate bill, but we have reservations as well. In particular, contrary to the President's request, the Senate bill does not provide the SEC with the authority to bar individuals who engage in serious misconduct from serving as officers and directors of any public company. The SEC needs this new authority to punish those that have proven themselves unworthy to serve shareholders.

We are also concerned that the Senate proposal gives the power to enforce securities laws to an unaccountable private body, which is not consistent with our sense of responsible law enforcement. Moreover, this new "accounting oversight board" would be redundant and competitive with the SEC. We do not need that kind of bureaucratic confusion undercutting enforcement efforts, and letting villains off the hook.

Instead, the Administration believes that a two-tiered regulatory framework will best protect investors. The SEC recently suggested an independent accounting oversight board to set, oversee, and enforce professional audit and ethics standards. The SEC itself would continue to investigate and enforce violations of the securities laws. These clear lines of authority will ensure that the Accounting Board and SEC are both fully accountable.

I'm eager to work with the Congress to get legislation to the President before the August recess to restore accountability and integrity to our corporate governance and disclosure system. But new laws alone cannot make a perfect world. We have laws against bank robbery, but we still have bank robbers. We need the other institutions of our free market system to reinforce the call for higher standards. That is why I applaud actions by private organizations, such as the New York Stock Exchange and the National Association of Securities Dealers, to create better rules for their membership, independent of our work in Washington.

Most of all, I call on true corporate leaders, those who cherish their freedom and the success our system has allowed them, to stand up and defend the values of honesty, integrity, and accountability. I believe that most executives accept and live up to the principle that with the big job comes big responsibilities. Leadership means more than keeping your head down and following the rules. It means instilling a value system that runs throughout your company.

Most of the things being proposed for regulation and legislation are things that you and I and most of the CEOs we know have practiced for years, because they are common sense and they are the right things to do.

No government can compensate for a lack of an articulated value structure from the top. Face it: the 90s are over. Now is the time for sober virtue. Investors are demanding information, and because our system works, they are going to get it. Companies that take steps now to examine their practices -- from disclosure, to accounting, to compensation -- will ensure that they meet shareholder expectations.

By getting accurate, timely, plain-English information to investors and employees they will earn the public's trust anew. People across this nation will again feel confident that they can safely invest their life-savings in American business. And acting individually to do what's right, corporate leaders will collectively strengthen the U.S. economic system.

Our economic system remains the envy of the world. Together the President's proposed reforms and leadership in the corporate world will make that system even better.

 

(Op-ed column from the New York Times on Monday, 07/08/02)

(This byliner by John McCain, United States Senator (Republican-Arizona), first appeared in the New York Times July 8 and is in the public domain. No republication restrictions.)

Washington -- In a string of corporate failures and scandals from Enron to WorldCom, we have seen the first principles of free markets -- transparency and trust -- fall victim to corporate opportunists exploiting a climate of lax regulation. I have long opposed unnecessary regulation of business activity, mindful that the heavy hand of government can discourage innovation. But in the current climate only a restoration of the system of checks and balances that once protected the American investor -- and that has seriously deteriorated over the past 10 years -- can restore the confidence that makes financial markets work.

Congress and the president must move quickly to frame legislation and reform corporate governance and government oversight. And I would add one more suggestion: they should ask for the resignation of Harvey Pitt, chairman of the Securities and Exchange Commission. While Mr. Pitt may be a fine man, he has appeared slow and tepid in addressing accounting abuses, and concerns remain that he has not distanced himself enough from former clients.

The need for government action and oversight is clear. Corporations fabricated revenues, disguised expenses and established off-balance-sheet partnerships to mask liabilities and inflate profits. Executives maximized their compensation with stock option plans that burdened their companies with huge costs hidden from investors. Venerable accounting firms, having looked the other way as companies cooked the books, shredded documents to hide their misdeeds. Although American tax policy encouraged them to do so, corporations that move their legal headquarters offshore to avoid taxes appear conspicuously ungrateful to the country whose young men and women are risking their lives today to defend them.

Reforms must ensure a complete separation of the auditing and consulting services provided by an accounting firm; a firm that audits a company must be prohibited from providing any consulting service -- ever -- to that company. Legislation sponsored by Senator Paul Sarbanes would create an Accounting Oversight Board to establish and enforce the standards for audits of publicly traded companies. But this oversight board should be completely independent from the industry, financed either as part of the S.E.C. or a separate agency.

Stock options, while a legitimate and valuable form of employee compensation, must be identified as an operating expense in a public company's financial reports. Top executives should be precluded from selling their own holdings of company stock while serving in that company. Executives should be allowed to exercise their options, but their net gain after tax should be held in company stock until 90 days after they leave the company.

Executives should be required to return all compensation directly derived from proven misconduct. Also, a corporate compensation committee should be made up of members of the board who have no material relationship with the company or personal relationship with its management. Indeed, the entire board should be similarly independent, with the exception of the chief executive.

Top executives should be required to certify personally that the company's public financial reports are accurate and that all information material to the financial health of the company has been disclosed. If their certification is false, they should go to jail.

Government should remove egregious conflicts of interest in "full-service" financial institutions. Investment services, including research, should be separated from lending, underwriting and securities trading.

Even as we take these and other necessary measures, asking for the resignation of Mr. Pitt would help show the public our seriousness. During his first 10 months as S.E.C. chairman, he did not participate in 29 of the commission's votes, most of which involved his former clients. To address corporate misconduct, he seems to prefer industry self-policing to necessary lawmaking. Government's demands for corporate accountability are only credible if government executives are held accountable as well.

What is at risk is the trust that investors, employees and all Americans have in our markets and, by extension, in the country's future. To love the free market is to loathe the scandalous behavior of those who have betrayed the values of openness that lie at the heart of a healthy and prosperous capitalist system.

(John McCain, a Republican, is a U.S. Senator from Arizona.)

 

Role of the Board of Directors in Enron's Collapse.

U.S. Senate. Committee on Governmental Affairs. Permanent Subcommittee on Investigations. Committee Report 107-70, July 8, 2002.

http://www.senate.gov/~gov_affairs/070902enronboardreport.pdf

"The report examines in detail the role of the Enron Board in the company's bankruptcy and concludes that the Board saw but ignored numerous questionable practices by Enron management to the detriment of Enron shareholders, employees and business associates and contributed to the company's downfall. The report cites numerous failures of duty by the Board.”

President Announces Tough New Enforcement Initiatives for Reform.

Remarks by the President on Corporate Responsibility. July 9, 2002.

http://www.whitehouse.gov/news/releases/2002/07/print/20020709-4.html

http://www.whitehouse.gov/infocus/corporateresponsibility/

"I've come to the financial capital of the world to speak of a serious challenge to our financial markets, and to the confidence on which they rest. The misdeeds now being uncovered in some quarters of corporate America are threatening the financial well-being of many workers and many investors. At this moment, America's greatest economic need is higher ethical standards -- standards enforced by strict laws and upheld by responsible business leaders.”

Corporate Responsibility - Sarbanes-Oxley Act of 2002 July 30, 2002

http://www.whitehouse.gov/infocus/corporateresponsibility/ 

 http://thomas.loc.gov/

“President Bush signed into law H.R. 3763 , the "Sarbanes-Oxley Act of 2002." This Act adopts tough new provisions to deter and punish corporate and accounting fraud and corruption, ensures justice for wrongdoers, and protects the interests of workers and shareholders.”

Rebuilding Trust in Corporate America.

Treasury Secretary O'Neill, Remarks at the U.S. Chamber of Commerce. July 10, 2002. http://www.treas.gov/press/releases/po3241.htm

“I'm eager to work with the Congress to get legislation to the President before the August recess to restore accountability and integrity to our corporate governance and disclosure system. But new laws alone cannot make a perfect world Most of all, I call on true corporate leaders, those who cherish their freedom and the success our system has allowed them, to stand up and defend the values of honesty, integrity, and accountability.”

U.S. Senate. Committee on the Judiciary. Subcommittee on Crime and Drugs

Penalties for White Collar Crime: are we really getting tough on crime? Hearing, July 10, 2002.

http://judiciary.senate.gov/hearing.cfm?id=310

Committee Chairman Leahy: “We cannot have a system where a pickpocket who steals $50 dollars faces more jail time than a CEO who steals $50 million. The integrity of our judicial system depends on accountability. In addition, the mounting scandals and declining stock market have demonstrated, the integrity of our public markets depends on the same accountability.”

SEC Operations: Implications of Alternative Funding Structures GAO-02-864, July 16, 2002. 34p

http://www.gao.gov/cgi-bin/getrpt?GAO-02-864

“Congress has created a range of self-funding structures for financial regulatory agencies that rely on fee collections, assessments, or other sources of funding rather than on appropriations from the Treasury’s

general fund… Moving SEC to a more self-controlled funding structure has implications for SEC operations in two important areas. First, SEC would have more control over its own budget and funding level, which some SEC and industry officials believe may better enable SEC to take steps to address

its increasing workload and some of its human capital challenges… A second implication for SEC’s operations is the resultant loss of checks and balances currently provided by the federal budget and appropriations processes.”

Wrong Numbers: the accounting problems at World Com

U.S. House. Committee on Financial Services, Hearing, July 8, 2002. http://financialservices.house.gov/hearings.asp?formmode=detail&hearing=151

"With market confidence rapidly eroding, it is vital that Congress move as expeditiously as possible to get to the bottom of WorldCom and understand how corporate officers improperly manipulated the company's financial condition to the tune of $3.8 billion, misleading investors and jeopardizing the viability of the company. If we are to restore confidence and prevent future corporate abuses on Wall Street, we first need to bring those responsible before the Financial Services Committee to get truthful answers about what happened."Bernard Wolfman

Auditors: Stick to Your Auditing Tax.org. Tax Notes, July 8, 2002 http://www.tax.org/Communications/Wolfman

“The United States Senate is about to pass a bill called the Public Company Accounting Reform and Investor Protection Act of 2002. If it becomes law, that will be good, but for two reasons it will not be good enough. The bill is designed to eliminate auditor conflict-of-interest but it fails to achieve its goal in two major respects.”

Robert E. Litan, George J. Benston, Michael Bromwich, Alfred Wagenhofer The Crisis in Corporate Disclosure

Brookings Working Paper, July 8, 2002, 18p http://www.brookings.edu/dybdocroot/views/papers/litan/20020708.pdf

“The scandals surrounding the disclosure failures and shortcomings associated with Enron, Worldcom, and certain other large public companies have put the spotlight of public attention on accounting and disclosure policies in a way many may never have imagined, or certainly welcomed. The challenge now for policy makers is to make the right “fixes” without damaging the disclosure process. We outline in this book what we believe is a prudent agenda for achieving this objective.”

Carol Graham, Robert Litan, and Sandip Sukhtankar

The Bigger They Are, The Harder They Fall: An Estimate of the Costs of the Crisis in Corporate Governance

The Brookings Institution, Working paper, July 22, 2002

http://www.brookings.edu/views/papers/graham/20020722.htm

“The two largest bankruptcies in U.S. history, WorldCom in July 2002 and Enron in December 2001, stem from corporate mismanagement, and symbolize the broader crisis in corporate governance. We provide a ballpark estimate of the costs of the crisis, based on conservative estimates of the effects of the crisis on stock market wealth, calibrated according to the Federal Reserve Board’s model of the U.S. economy.”