Bush Chides Nation’s CEOs, Threatens Harsher Penalties
WASHINGTON — Lecturing corporate chief executives to set a "moral tone" for running squeaky clean companies, President Bush detailed in a Wall Street speech on Tuesday how the government will crack down and punish executives who knowingly cook...
WASHINGTON — Lecturing corporate chief executives to set a "moral tone" for running squeaky clean companies, President Bush detailed in a Wall Street speech on Tuesday how the government will crack down and punish executives who knowingly cook the books.Plans include creating a corporate crime task force, beefing up the Securities and Exchange Commission and backing legislation to tighten accounting oversight and increase maximum prison terms for financial fraud convictions."More scandals are hiding in corporate America," Bush said. "We must find and expose them now, so we can begin rebuilding the confidence of our people and the momentum of our markets."Bush’s speech was designed, in part, to bolster investor confidence in light of the recent spate of corporate accounting scandals. All the bad news about billions of dollars in unreported shortfalls — and the resulting layoffs of workers and losses to shareholders — has taken yet another toll on the stock market.Wall Street’s first impression of the President’s remarks was less than enthusiastic. Afternoon selling drove the Dow Jones Industrial Average down 178.81 points, or 1.9 percent, to close at 9,096.09 and the Nasdaq Composite Index fell 24.48 points, or 1.7 percent, to end the session at 1,381.13.Ken Goldstein, an economist at the Conference Board, said: "I suspect if the drop in the market is associated with the speech, it is probably because of what [Bush] did not say. Investors were looking for bold solutions to the problem. This is a major problem and demands major answers, and announcing [executives] could face double jail time is not a major change that could prevent this from happening again."The President used his bully pulpit not just to excoriate bad actors, but alternately called on chief executive officers to set a "moral" or "ethical" tone in their corporate dealings. As part of a 10-point, voluntary plan, he called on stock markets to require a majority of a company’s directors as well as auditing, nominating and compensation committees to have no material relationship with the company. Sounding a populist note, Bush also called on executives to be more direct in reporting the value of their compensation packages to the Securities and Exchange Commission."I challenge every ceo in America to describe in their company’s annual report, prominently and in plain English, details of his or her compensation package, including salary and bonus and benefits," Bush said. "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."Alan Questrom, chairman and ceo of J.C. Penney Co., said Bush’s speech served to lay out a battle plan of enforcement, much of which is already on the books."I’m certainly in agreement with it," Questrom said. "These are subjects that no one can really argue about."However, Questrom said there are limits to what the government can do because there will always be people who will break the rules."Let’s face it, it’s not limited to the business community," he said. "It’s in sports, the church — there’s a lot of dishonesty. The problem is, you can have thousands and thousands of rules, but if people don’t have a moral compass, we’re going to go through this from time to time."As for Bush’s call for companies to more clearly report and explain ceo compensation, Questrom figured that 75 to 80 percent of major corporations already do that."I think [Bush] was making sure all companies follow that," Questrom added.Lisa Wolski, tax and finance counsel at the International Mass Retail Association, said Bush is "striking the right tone in that he’s trying to reassure investors and markets that fraud is really going to be punished and perhaps more severely than in the past."However, Wolski said it’s unclear when consumer confidence will be restored. She said, "We’ll see what happens if there is a whole lot more [scandal] out there."Much of what Bush called for either has to be legislated by Congress or approved by regulators. On Capitol Hill, the Republican-controlled House already has approved an accounting reform bill, and one is under consideration by the Democrat-controlled Senate.Senate Democrats criticized Bush for not stating his support for their reform plan that has garnered strong Republican backing in the chamber. The bill would create a private, independent body to establish auditing and ethics rules and would discipline auditors. The bill would also limit the consulting work that accounting firms can do for their audit clients."It is not enough to talk about accountability. You have to act to ensure it," said Senate Majority Leader Tom Daschle (D., S.D.), said.Sen. Jon Corzine, (D. N.J.), former head of the investment bank Goldman Sachs, called Bush’s speech "a grave disappointment."
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