Not enough

July 10, 2002

WITH THE ECONOMIC and political stakes mounting, President Bush went to Wall Street yesterday to talk tough and restore confidence in the nation's stock markets. He said many of the right things, on both ethics and new regulatory moves.

But given the weekly revelations of corporate scandal, Mr. Bush should have given this talk weeks ago. His speech was not only late, it offered too little -- particularly in its significant failure to endorse Maryland Democratic Sen. Paul Sarbanes' plan for independent regulation of accountants.

First, Mr. Bush should be applauded for the steps he did endorse, though some had been announced as far back as March. Welcome moves cited in his speech:

Increasing funding for the Securities and Exchange Commission (but even more is needed).

Supporting New York Stock Exchange proposals for more independent corporate boards.

Stepping up prosecution of corporate fraud and stiffening criminal penalties.

Making executives personally vouch for their firms' financial statements, forcing them to give back ill-gotten compensation, and banning wrongdoers from leading publicly traded companies again.

Improving workers' 401(k) choices, treating them the same as executives'.

Ensuring Wall Street analysts' advice isn't tainted by their firms' other interests.

Particularly timely -- given the widespread belief that more corporate abuses will emerge in coming weeks -- is the recent SEC order requiring the CEOs of about 950 large public firms to certify the accuracy of their financial statements over the last year.

But most troubling, Mr. Bush adhered to his support for the House plan to create a federal board to regulate accountants. Mr. Sarbanes' plan, now before the Senate, would create a more independent body. Despite intense industry opposition, GOP support for the Sarbanes plan is growing. Mr. Bush's failure to endorse it was glaring.

Another troubling omission was his lack of support for treating stock options as a corporate expense. Mr. Bush's vow to force CEOs to publicly justify their compensation doesn't jibe with his unwillingness to properly account for options, which increasingly represent a massive transfer of shareholder wealth to executives. This is perhaps indicative of the president's truer leanings.

On that score, while tough talk was needed, the test is whether yesterday's proposals are quickly put into practice. Doubt is induced by Mr. Bush's continued backing of his SEC chief, Harvey Pitt, who came to office promising a "kinder and gentler" SEC. It's telling that the nation's stock markets -- the ultimate measure of belief in Mr. Bush -- drifted lower after his speech.

Last, Mr. Bush needs to put his own house in order. His speech cast this crisis as the result of the moral relativism of the Clinton era. That ignores the GOP's dedication in the 1990s to loosening market and tax regulation and Mr. Bush's own questionable stock dealing. It also ignores his administration's relentless spending and its efforts to make permanent tax cuts primarily benefiting the wealthy -- contributing to the rapid turn from national budget surpluses to growing deficits.

Mr. Bush is right. In companies, as in the government, the tone is set at the top. Though not enough was promised in yesterday's speech, a lot was. The test will be if he delivers on those promises.

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