Gaining Trust in Market of Lies; Give Corporate Governance a Chance to succeed.(OPED)

Article excerpt


After a short recession, most economic data indicates that the country is ready to begin a new period of sustained economic growth. The housing market is strong, business inventories are down and there is a powerful combination of low interest rates and fiscal stimuli to provide the capital for business expansion and consumer demand.

Yet, our financial markets are in disarray, rocked by a series of scandals that have undermined their integrity. Icons of probity and competence have been knocked off their pedestals, including the accounting profession. Chief among those in whom the public has lost confidence is corporate leadership itself. It has gotten so bad recently that according to some polls, CEOs are now viewed as less trustworthy than politicians.

Such is the paradox of the American economy, which at this pivotal time in its history is both remarkably resilient and remarkably vulnerable: It continues to benefit from great gains in the 1990s, but unless the American investor regains faith in the integrity of corporate leaders and the markets, we could slip back into recession and lose many of these hard-fought gains.

So, how do we restore that faith? Since the collapse of Enron, many proposals for strengthening corporate governance have reconsidered the roles of various responsible parties - corporate boards, management and sometimes regulators. Some of them suggest treating Enron-WorldCom-itis by giving boards of directors of public companies greater authority and imposing harsher penalties on them when they stumble in using it.

Greater board accountability makes sense, but we should hardly expect to prevent more Enrons and WorldComs simply by increasing penalties for directors. For better corporate governance, we need to reinvent the board-company relationship.

America is blessed with hundreds of corporate boards made up of experienced, public-spirited directors, but they are hampered by how the corporate board as an institution has evolved in this country. Accepting a board position today is a relatively low-paid, low-key undertaking, a sporadic, collegial exercise incommensurate with the weighty responsibilities of corporate governance.

Board members today have no support staff, so they rely heavily on what management tells them. Even those corporate officials (other than the CEO) who report directly to the board (typically only the internal auditor) have a dotted line relationship to management, are in effect hired by management and more or less allied with it. …