[ OUR OPINION ]
GEORGE W. Bush yesterday toughened his reaction to the scandals that have beset Wall Street, troubles he seemed to dismiss previously as the transgressions of a few bad apples. But more than strengthened rhetoric is needed to restore confidence in corporate America. The measures that he finally has proposed to rein in opportunistic tycoons, while useful and aimed in the right direction, fall somewhat short of what is needed. Corporate greed
needs to be bridled
THE ISSUE President Bush has called for measures to crack down on corporate wrongdoing.
In recent cases, top executives at such corporations as Enron and WorldCom made fortunes by exercising stock options before their companies plummeted. Bush has proposed that corporate leaders be required to "tell the public promptly whenever they buy or sell company stock for personal gain."
That is not enough. The New York Stock Exchange and the Nasdaq stock market already have proposed rules to limit the size of executive stock-option grants by companies on their exchanges. Abuse of stock options will end only when executives are forbidden from selling their stock while serving in the company, and when net gains are held in the company's stock until 90 days after the executive resigns, as proposed by Sen. John McCain, R-Ariz.
In yesterday's speech on Wall Street, the president came closer to effectively dealing with conflicts of interest in companies that audit the books of corporations. Book-cooking came to light after Enron's collapse and became even more glaring after auditors failed to detect WorldCom's misstatement of profits by $3.85 billion.
Bush called on the Securities and Exchange Commission, which regulates publicly traded companies, to adopt rules ensuring "that auditors will be independent and not compromised by conflicts of interest." Conflicts could be better eliminated by an accounting oversight board that would bar accounting firms from providing other consulting services to their clients, as called for in a bill moving through the Senate.
The president also recommended doubling the maximum prison time, from five to 10 years, for executives convicted of mail or wire fraud. However, such statutory limits are ignored by judges, whose sentence parameters are determined by guidelines established by the U.S. Sentencing Commission. Those terms are based more on the amount of the fraud. The main problem will continue to be obtaining malfeasance convictions of corporate crooks before juries faced with the difficult task of trying to understand complex accounting issues.
Bush also ordered creation of a Corporate Fraud Task Force, headed by a deputy attorney general, to coordinate prosecution of fraud and related crimes. The task force could be useful in coordinating civil actions taken by the SEC and criminal prosecutions initiated by the Justice Department.
The president called for "a new ethic of personal responsibility in the business community." Aggressive action, more than the bully pulpit, is needed before the blows that have rocked Wall Street reverberate on Main Street.
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