Washington is closing in on a sweeping reform of how corporate
America is governed.
Scarcely 48 hours after President Bush lectured Wall Street on
his get-tough plan, the Senate is poised to vote on its own version
of reform - which on many points goes further than Mr. Bush's.
Democrats have led the Senate drive, although support from
Republicans has surged in the past few days.
The bill establishes an independent oversight board with powers
to discipline and set standards for auditors. New rules cover
everything from how often auditors must be rotated (every five
years) to when documents can be shredded without risking jail time.
In a bid to curb conflicts of interest, the bill also restricts
auditors from advising clients how to pay their taxes or design
their financial-services system. Stock analysts could no longer
publish research reports on customers that their firms also
If the bill becomes law, corporate insiders lose some perks: No
longer could top executives sell company stock during periods when
employees cannot. Nor can they accept company loans without
disclosing them. Those at the top also face more stringent
regulations: Under the terms of this bill, CEOs and CFOs must
personally certify that their company's financial reports are fair
and accurate. If the accounts turn out not to be accurate - and the
company also violates securities laws - they risk forfeit of profits
and bonuses. If key amendments are added to this bill, they could
also face a felony conviction and 10 years in prison.
In all, it's a much more intrusive solution to the problem of
corporate governance than appeared likely even a few weeks ago. In
fact, late last year, after the first disclosures of financial
wrongdoing at Enron, it looked as if Congress would not get much
beyond sensational hearings and finger-pointing.
Increasing pressure to act
But a recent surge of disclosures of wrongdoing at companies like
WorldCom has dramatically increased the pressure on lawmakers to
move quickly to restore confidence in troubled markets.
Within hours of the announcement that WorldCom hid $3.8 billion
in expenses, Senate Democratic leaders moved a bill sponsored by
Sen. Paul Sarbanes (D) of Maryland to the top of the Senate agenda,
trumping 13 pending appropriations bills and a new law on
Despite strong initial opposition to this bill from Sen. Phil
Gramm of Texas, the ranking Republican on the Senate banking
committee, many GOP senators are rallying to this bill, which passed
the committee on a surprising 17-to-4 vote June 18. While some GOP
amendments have been characterized by Democrats as "poison pills"
designed to scuttle the bill, others aim to make it stronger.
For example, an amendment proposed by Sen. Richard Shelby (R) of
Alabama would make it easier for investors to sue accountants,
lawyers, or bankers who "aid or abet" in securities fraud.
With some two-thirds of the American public now invested in the
stock market, the issue of corporate deception on financial
statements has been too strong for partisans on either side of the
aisle to ignore. "It is clear that there is a mind in the Congress,
if not in the country ... that we need to do something, even if it
is wrong," said Senator Gramm during this week's debate. …