Start leading

July 17, 2002

In trying to cure America's ailing financial markets, President Bush has been doing a lot of following. Now he needs to start leading, however belatedly. He can begin by fully supporting Maryland Democratic Sen. Paul Sarbanes' sweeping bill to tighten corporate regulation -- as well as efforts to require companies to properly account for stock options.

But so far, the administration's support for Mr. Sarbanes' bill, given rare unanimous approval by the Senate on Monday, has risen to lukewarm at best. The president, and his corporate backers, are doubtlessly waiting to see what's left after a congressional committee reconciles it with a weaker, Republican-backed House bill. There's no assurance the Senate bill won't be significantly hobbled, and it still appears Mr. Bush -- who says he'll sign whatever the committee cooks up -- could live with that.

For the moment, Senate approval of the Sarbanes legislation is among the greatest triumphs of the Maryland Democrat's long career. As this crisis has unfolded, he has been in the right place at the right time -- and worked hard to take advantage of it. Mr. Bush could learn from that.

Among many differences, his bill represents stronger medicine than the House's on the independence of a new board to regulate accountants, the breadth of consulting services that accountants couldn't provide, and restraints on executive compensation.

Underscoring how slow off the mark the Bush administration has been, even the Republican-led House yesterday passed a tough bill on criminal penalties for fraud. States have jumped ahead of the Securities and Exchange Commission in pursuing Wall Street conflicts of interests. Now some corporations are getting ahead by opting to treat stock options as expenses.

The omission from the Sarbanes bill of such a requirement is telling. Sens. Carl Levin, a Michigan Democrat, and John McCain, an Arizona Republican, tried to include it and failed.

But if honest accounting is now critical -- as Mr. Bush says -- options must be expensed. They allow recipients, largely top executives, to gain from company stock-price rises. To honor them, companies print more stock, thus diluting the earnings and holdings of shareholders. Expensing them accounts for that loss, even if it paints a less favorable financial picture.

Yesterday, Alan Greenspan, the Federal Reserve chairman, came out for treating options this way, though not by regulation. On Monday, the Coca-Cola and Washington Post companies, both prodded by mega-investor Warren Buffett, said they'd begin doing so. More big firms likely will follow, and Democratic congressional leaders are vowing not to drop their efforts to enforce this by legislation.

But the Bush administration has not favored it, just as it has not supported Mr. Sarbanes' bill. If the president really wants to foster trust in the nation's markets and in himself, he should move out front -- in favor of both the Senate bill and efforts to properly expense stock options.

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