- The Washington Times - Thursday, March 7, 2002

President Bush today will propose stripping CEOs of bonuses if they profit from bogus financial statements and barring executives from running publicly held firms if they abuse their power.
Spurred by the collapse of Enron, which wiped out the savings of ordinary workers while enriching top executives, Mr. Bush will introduce a 10-point plan to protect the nation's shareholders and improve corporate responsibility.
According to White House documents obtained by The Washington Times, the plan calls for giving broad new powers to the Securities and Exchange Commission. These powers, some of which would require congressional legislation, would let the SEC punish corporate executives who use their positions to enrich themselves at the expense of shareholders.
"I recognize that the basic rules of corporate law are made by the states, but Washington has responsibilities as well," Mr. Bush is expected to say in a speech this morning at a Washington hotel, according to advance excerpts.
"The buying and selling of publicly held shares is regulated by the federal government, and today I am calling on the Securities and Exchange Commission to take action," the president is expected to say. "Existing regulations should be clearer, and penalties for wrongdoing should be tougher."
The 10-point plan is the most extensive batch of concrete proposals put forth since Jan. 10, when Mr. Bush announced several government reviews in the wake of Enron's collapse.
Under current law, the SEC must obtain court approval to ban executives from serving as officers or directors of publicly held companies. Mr. Bush wants Congress to pass legislation that would give the SEC the authority to take such action unilaterally.
The president also wants the SEC to establish guidelines that would prevent external auditors from performing other services for clients, such as internal audits, that corrupt the auditor's traditional role of fiscal watchdog for the shareholders.
Members of Congress have complained that auditors have too much of a vested interest in exaggerating the financial health of clients in order to preserve lucrative contracts for other auditing services. Enron's auditor, Arthur Andersen LLP, is under investigation for shredding documents just as the firm spiraled into bankruptcy and federal investigations.
The new SEC guidelines also would force firms to disclose in greater detail all fees paid to the auditors and their affiliates. Audit committees, operating under SEC guidelines, would report directly to shareholders with recommendations on which auditor to hire.
Auditors also would be required to gauge a firm's accounting systems by measuring against "best practices, not simply against minimum standards," the White House said.
"Reform should improve investor confidence and help our economy grow," Mr. Bush is expected to say. "It is important to provide regulation and remedies where needed, without inviting a rush of new lawsuits that exploit problems instead of solving them."
Mr. Bush also will call for the creation of an independent regulatory board, under SEC supervision, to develop standards of professional conduct and competence. The board would have the authority to monitor, investigate and enforce its standards of ethics by punishing offenders.
The president, himself a former CEO, wants to crack down on corporate executives who line their pockets while keeping employees and other shareholders in the dark about a firm's financial health.
To that end, Mr. Bush will propose that CEOs not be allowed to profit from "erroneous financial statements."
Under this proposal, bonuses and other incentive-based forms of compensation would be "disgorged" from CEOs whose misconduct results in accounting restatements, according to the White House.
CEOs also would be forced to personally vouch for the "veracity, timeliness and fairness" of their companies' financial statements and other public disclosures. CEOs typically sign only a bare-bones certification of annual financial statements.
Under the Bush plan, they would have to attest personally each quarter that the company's financial disclosures will allow "reasonable investors" to make "informed investment decisions." Disclosures would have to be written "in plain English."
While firms would not be forced to reveal competitive secrets, they no longer would be allowed "to conceal the true risks faced by investors," the White House said.
"Our goal is better rules, so that conflict, suspicion and broken faith can be avoided in the first place," the president is expected to say.
Corporate executives also would be required to tell the public promptly whenever they buy or sell company stock for personal gain.
Such executives currently can wait a year or more before disclosing personal transactions with a firm and as long as 40 days for open-market transactions. The president's plan would give firms just two days to disclose significant transactions involving company directors or officers.
Mr. Bush also wants to give the SEC broader oversight of the Financial Accounting Standards Board.
The board would be forced to promulgate standards "that reflect economic reality rather than compliance with technical requirements," the White House said.
On Jan. 10, just as the White House revealed that Enron's former CEO, Kenneth L. Lay, had asked several Cabinet secretaries for a government bailout, Mr. Bush announced several government investigations.
He specifically ordered the Treasury, Commerce and Labor departments to analyze pension regulations and the vulnerabilities of shareholders to bankruptcies. Mr. Bush also told the SEC, the Federal Reserve, the Federal Trade Commission and the Treasury Department to review corporate disclosure rules.


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