VideoWas this a seminal moment for the U.S. capital markets -- or just an empty threat that will foster more cynicism out in the heartland?
That was the big question being asked by financial pundits, academics, and politicians as soon as President Bush completed his midday speech on Wall Street on Tuesday.
At least for one day, Bush certainly sounded like a man determined to crack down on corporate abuses and see to it that those who commit crimes spend time in jail.
"My administration will do everything in our power to end the days of cooking the books, shading the truth, and breaking our laws," said Bush in his historic speech before 1,000 top corporate executives. "At this moment, America's greatest economic need is higher ethical standards."
Bush called for doubling maximum prison terms to 10 years for mail and wire fraud charges. He also wants to strengthen laws against document shredding and other forms of obstruction of justice.
The President also asked Congress to strengthen the ability of Securities and Exchange Commission investigators to temporarily freeze improper payments to corporate executives. In addition, Bush wants to strengthen laws that punish employees who destroy corporate documents in an effort to hide crimes.
In addition, Bush called for a 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," he noted.
Further, Bush proposed a 10-point accountability plan for U.S. businesses. That plan, the President said, is designed to provide better information to shareholders; set clear responsibility for corporate officers; and develop a stronger, more independent auditing system.
"Corporate officers who benefit from false accounting statements should forfeit all money gained by their fraud," Bush told the huge audience, which applauded just once during his speech.
The President also wants the SEC to ban corporate managers convicted of abusing their powers from ever serving again as officers or directors of a publicly held corporation. He also endorsed the SEC's accountability plan, which requires CEOs to personally vouch for their companies' annual financial statements.
During the speech, Bush called for independent auditors to be truly independent. Toward that, he endorsed proposals already advanced by The Business Roundtable, the New York Stock Exchange, and Nasdaq, including plans that require independent directors to compose a majority of a company's board. The President said he believes members of audit, nominating, and compensation committees should be independent, and that all stock option plans should be approved by shareholders.
Speaking to some of the best-paid workers on the planet, the chief executive challenged companies to prominently divulge executive compensation packages and perks in annual reports, rather than in proxies.
"I call on all the stock markets to adopt these sensible reforms as soon as possible," he said.
Bush then asked for a $100 million increase in the fiscal 2003 budget for the SEC. The additional funds would go to hire more investigators and purchase equipment.
"Self-regulation is important, but it's not enough," asserted Bush. "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."
The President failed to back more-aggressive methods to control accounting fraud, however. He rejected, for example, proposals that would require publicly traded companies to expense stock options awarded to executives. More conspicuous: Bush did not call for a federal board to oversee the accounting industry.
"The American system of enterprise has not failed," said Bush. "Some dishonest individuals have failed our system."
While the President's speech may have played on Main Street, it did not exactly receive a warm reception on Wall Street. The major indexes plunged yesterday, down between 1.75 percent and 2.5 percent.
And, as expected, Democrats gave the speech two thumbs down.
New York State Attorney General Eliot Spitzer, who has been investigating possible conflicts of interest at U.S. investment banks, told Bloomberg that Bush "didn't move the ball forward at all."
Senate Majority Leader Thomas Daschle (D-S.Dak.) echoed that sentiment. "I thought the President spoke loudly, but he offered a very, very small stick."
Diane Swonk, chief economist at Bank One Corp., added that the proposals "are all ideas that have been floating around the market for a while." She believes that accounting standards need to "be addressed, and fast."
Probably so. Nevertheless, the President did up the ante by calling for prison sentences for corporate lawbreakers. Charles Elson, director of the Corporate Governance Center at the University of Delaware, told Bloomberg: "The prospect of jail time, and the utter destruction of one's professional reputation, likely will be a very powerful disincentive for those who are tempted to monkey with the books."
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