New Corporate Accountability Measures Necessary
Brookings Institution experts say companies must decrease corporate scandals.
Oct. 22, 2007 -- This week, Opportunity '08 takes a closer look at corporate governance and how the next president can protect the investments and retirement plans of millions of Americans by leading the effort to strengthen the roles of gatekeepers.
The Securities and Exchange Commission's investigation of Countrywide CEO Angelo Mozilo's stock sales, included in a probe of at least a dozen companies in connection with the subprime mortgage market crisis, is the latest scandal raising questions about corporate accountability.
Business experts say companies aren't doing enough to promote accountability, transparency and compliance; responsibilities that usually fall on "gatekeepers" -- corporate directors, in-house and outside counsel, and internal and external auditors. "Had the gatekeepers of Enron, WorldCom, and similar corporations been more effective, shareholders would not have suffered the huge losses they did," says Dick Thornburgh, who was the examiner in the WorldCom bankruptcy proceedings.
After such scandals as Enron and WorldCom, Congress hastily passed the Sarbanes-Oxley Act of 2002, or SOX, in an effort to protect U.S. capital markets and millions of American shareholders. "While SOX may have increased investor confidence in the short-term, ongoing compliance with its requirements, as well as the heavy fines imposed by the SEC, have proved extremely expensive for some companies," says Michael Missal, who served as lead counsel to Thornburgh in the WorldCom proceedings.
Thornburgh and Missal argue that the act's costs outweigh its benefits, yet the gatekeeper-related provisions still do not go far enough. "Board members should be required to participate in an initial orientation as well as in periodic continuing education, and the SEC should consider requiring attorneys to pass a competency examination before being permitted to appear before it," Thornburgh advises.
The other recommendations include an SEC inspection program to review corporations' financial statements and accounting practices, and the requirement that the board's compensation committee approve the compensation of all top-tier executives.
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