Unfinished business

August 01, 2002

WHAT A week. There was the satisfying image of a cable TV magnate being led away in handcuffs, charged with looting his own company. The Dow Jones average racked up its biggest one-day gain since 1987. President Bush got boxed into signing the most sweeping reform of corporate accounting since the Great Depression. Plus, the latest economic data aren't all that bad.

So, America's on the mend, right? The political system reacted quickly, plugging those costly leaks in the money ship and pointing the whole vast messy thing back on profitable course again, right?

Perhaps -- that is, if you don't tally all the other much-needed repairs that Congress won't accomplish before its August recess, particularly critical proposals on greater pension protections, more accurate accounting for stock options, and preventing firms from avoiding taxes by incorporating offshore.

Whether Congress will settle these matters this fall can't be taken for granted. And whether the Bush administration faithfully implements the Democratic bill he had to sign Tuesday also is a matter of doubt, given that the White House immediately issued a statement narrowly interpreting the bill's corporate whistleblower protections.

Direct and effective action on cleaning up this national financial disaster -- the full extent of which still may not be known -- now may be coming less from the murky congressional arena and more from the relative clarity of the marketplace. And there's some hope in that.

Today, for example, the board of the New York Stock Exchange votes on extensive proposals to ensure that company boards of directors are more independent of managers and more rigorously fulfill their auditing responsibilities, a move that may have a greater, more positive impact in the long run than Congress' accounting reforms.

Similarly, while Congress has failed to bar corporate moves to Bermuda to avoid taxes, California's state treasurer, who controls $45 billion in investments, says he'll no longer invest in U.S. firms that move to offshore tax havens. If other states follow, companies certainly will pay attention.

Congress also failed to enact worker 401(k) protections, but organized labor, with $6 trillion in pension investments, is now moving to directly pressure firms -- and big mutual funds that invest in them -- to better look after their employees' interests.

And though Mr. Bush and many members of Congress still oppose more accurate stock option accounting, more and more companies, increasingly interested in touting their transparent accounting to investors, are voluntarily taking such steps.

This is not to say that markets can fully solve these problems without new regulations. But it is to say that Congress ought to watch out: At this rate, if it doesn't quickly get back to serious work on its unfinished business when it reconvenes in September, neither Republicans nor Democrats may be able to believably cloak themselves as financial saviors come the November elections.

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