Deadline has CEOs quivering

July 26, 2002|By Jules Witcover

WASHINGTON - While keeping one eye on the stock market ticker, major corporate chief executive officers and chief financial officers are probably keeping the other eye, with some trepidation, on Aug. 14. That's the deadline imposed on them by the Securities and Exchange Commission to, in the SEC's words, "personally certify - in writing, under oath, and for publication - that their most recent reports filed with the Commission are both complete and accurate. Officers who make false certifications," the notice specifies, "will face personal liability."

The SEC isn't saying specifically now what that will be. But under the corporate responsibility bill of Maryland Democratic Sen. Paul Sarbanes that is moving toward the president's desk, culpable CEOs and CFOs will have to forfeit any profits from stock sales and bonuses received in the year following an erroneous or incomplete financial statement.

In setting the deadline June 28, Harvey Pitt, the beleaguered SEC chairman, declared the requirement "an unprecedented step to help restore investor confidence. We are demanding that CEOs and CFOs swear that the numbers they've reported in their final reports are correct and that they've left nothing important out."

The personal certification is being sought from the top executives of 945 public companies and corporations with reported income in excess of $1.2 billion. They must say whether the financial statements have been reviewed by an audit committee or by independent members of the firms' boards of directors. Further, the SEC says, they are being asked if not, why not, and if there are any incorrect statements or numbers in the reports, what are they?

In other words, the biggest corporate leaders in the business world are being told to come clean and are being warned that they can no longer shunt off responsibility to faceless green-eyeshade types to take the fall.

This, when you come to think of it, is pretty radical stuff. Harry Truman was famous for keeping a sign on his Oval Office desk that said "The Buck Stops Here." But there never was a stampede for such signs by big bosses in the corporate world.

The big question is whether other greed merchants like those who took Enron, WorldCom and other stockholders to the cleaners with phony financial statements will own up on Aug. 14 and take the heat, or try to continue their scams and dodge SEC sleuths whose ranks are being beefed up.

Mr. Pitt has a lot at stake in the success of the effort because Democratic congressmen, and a few Republicans, such as Sen. John McCain of Arizona, are screaming for his scalp. They say he has been too cozy with the accounting business in the past and, according to Mr. McCain, too slow on the draw in moving against the bad guys.

At the same time, President Bush and the leaders of Congress should worry that this notion could catch on - of having responsible parties put themselves on the line for numbers reported by the organizations they head. Can you imagine what would happen if federal leaders were required to put in jeopardy their own retirement money or what they've socked away for the kids' college education as support for the accuracy of their budget projections?

In the budget-balancing game that goes on in this town annually, it's standard operating procedure for presidents to include new sources of revenue they know they don't have a snowball's chance in hell of getting from Congress. And the good legislators of both parties never hesitate to say they can provide this or that item for only $X billion when they know full well it will cost at least $XXX billion.

But it's the corporate top dogs who are the target right now, not the White House or Congress. If the "personal liability" they will face if caught in charge of cooked books is only the loss of some of the ill-gotten gains, the public outcry may not be stilled.

Demands for jail time for lying and dissembling CEOs are being heard from irate investors. Anything less could mean even greater pressure from them for tougher enforcement by the SEC, and a tougher enforcer.

Jules Witcover writes from The Sun's Washington bureau. His column appears Mondays, Wednesdays and Fridays.

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