Others Bolder Than President About Reform

Dissatisfied with President Bush’s corporate reform plan, investment overseers across the country are taking matters into their own hands to force corporations and Wall Street investment firms to clean up their acts.

The treasurers of California and two other states say they won’t do business with investment banks that allow cozy relationships between their corporate finance and investment research divisions.

And prominent business leaders such as Intel Corp. founder Andy Grove are joining an effort by Peter G. Peterson, chairman of investment firm Blackstone Group, to press for corporate governance reforms.

These efforts represent the stern judgments of prominent people on the corporate scene today.

In almost all cases, these are lifelong business and professional people who know the score--and don’t accept Bush’s conclusion that a relative few corporate wrongdoers are causing all the trouble.

They believe, as Peterson puts it in a letter to 120 pension and investment funds, that the revelations about corporate malfeasance at Enron Corp., WorldCom Inc., Global Crossing Ltd. and other firms are “a moral cancer and a governance cancer, which must be cut out if our economic health is to be restored.”

California Treasurer Phil Angelides, who administers the state’s $250 billion in public employee retirement funds, said Tuesday that he will instruct the funds to bar investment banks from doing business with the state unless they separate their corporate finance activities from investment research to avoid conflicts of interest.

The treasurers of New York state and North Carolina agreed last week to take similar actions under a compact with California.

“We have to take consumer action because the president’s speech was weak on legislation and weak on investment banking reform,” Angelides said Tuesday.

Those three state treasurers are Democrats, and politics may play a part in their reception of Bush’s speech. But prominent Republican business figures also are pressing for reform.

“I think our equity culture is in danger,” said Robert A.G. Monks, a longtime advocate for corporate reform and director of the federal government’s pension fund protection agency under President Reagan. “The people are angry and confused and needed a leader, but the president didn’t lead,” Monks said.

Groups founded by Monks, including International Shareholder Services and Lens Inc., buy stock in companies to use their status as shareholders to press for corporate reforms.

Peterson, who served as secretary of Commerce under President Nixon, is organizing a Commission on Public Trust and Private Enterprise to unite major institutional investment funds to press for corporate governance reform.

In addition to Grove, Peterson has recruited former Federal Reserve Chairman Paul A. Volcker, former Securities and Exchange Commission Chairman Arthur Levitt, Peter Gilbert, chief investment officer of Pennsylvania’s state retirement system, and others to his commission. He stresses that his group takes no financial support from the business community.

The group aims to devise “best practice guidelines” for corporate management and to have the pension funds ask companies in which they own stock to adopt the guidelines or be disciplined by shareholder votes against management or the sale of stock holdings.

That Bush traveled to Wall Street on Tuesday to condemn corporate wrongdoing is encouraging to all of these private and public efforts. The speech raises the visibility of the problem and gives a green light to private reform efforts.

However, even admirers of the speech questioned its effectiveness.

“I like the idea of recapturing funds gained by accounting deception,” said Barbara Lougee, professor of accounting at UC Irvine, “but I don’t know how it can be implemented. Corporate executives have lawyers.”

What measures are reformers most interested in and why? Most focus on accounting reform because deceptive accounting has been at the heart of the repeated corporate scandals.

Many, such as Lynn Turner, a former SEC chief accountant who now teaches at Colorado State University, support legislation by Sen. Paul S. Sarbanes (D-Md.) that would empower a governmental oversight board to set auditing standards. The legislation also would prohibit an accounting firm from performing the basic audit and also doing tax consulting for the same client on grounds of potential conflict of interest.

But the accounting industry has been lobbying against that legislation, Turner says, and pushing a bill that passed the House of Representatives under the leadership of Rep. Michael G. Oxley (R-Ohio). Oxley’s bill, which Bush complimented in his speech Tuesday, would place auditing standards under the supervision of an SEC panel that would be guided by accounting companies.

Bush did not refer to other reforms that investment overseers want, including an accounting treatment for stock options that would recognize them as an expense.

“Bush is caught between corporate America and a groundswell of anger and concern among the public,” said a prominent investment expert who criticized the president only on condition of anonymity.

The criticism is that the president chose to side with what critics charge is a class of corporate managers unwilling to surrender prerogatives and perquisites.

But reform by private actions is coming to corporate America nonetheless, because public confidence is eroding and anger is rising. Serious money has been lost by funds vested with the retirement savings of thousands of Americans. The California Public Employees’ Retirement System, for example, has lost $580 million in WorldCom. Serious money will lead to serious reforms.

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Who’s On the Legislation Bandwagon

There are 38 pieces of legislation before Congress that attempt to address the issue of corporate misconduct. Two of the most talked-about are from Sen. Patrick J. Leahy and Sen. Paul S. Sarbanes. Eight are from the California delegation. Most of them have been introduced in the last six months.

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Corporate and Criminal Fraud Accountability Act of 2002

SB 2010

Sponsor: Sen. Patrick J. Leahy (D-Vt.)

Briefly: Prosecutions for people defrauding investors; debts incurred in fraud couldn’t be wiped out by filing for bankruptcy protection; protects whistle-blowers against retaliation

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SB 1896

Sponsor: Sen. Barbara Boxer (D-Calif.)

Briefly: Prohibits accounting firms from providing management consulting services to companies they audit; prohibits any other non-audit-related services by accounting firms that could result in a potential conflict of interest

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SB 1951

Sponsor: Sen. Dianne Feinstein (D-Calif.)

Briefly: Provides regulatory oversight for energy-trading markets and for other purposes

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HR 3634

Sponsor: Rep. Maxine Waters (D-Los Angeles)

Briefly: Called the Enron Employee Pension Recovery Act; provides for securities law fines to compensate employees who are victims of excessive pension fund investments in the securities of their employers

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HR 1732

Sponsor: Rep. Brad Sherman (D-Sherman Oaks)

Briefly: Requires the SEC to review the annual reports of accounting standards-setting bodies

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Public Company Accounting Reform and Investor Protection Act of 2002

SB 2673

Sponsor: Sen. Paul S. Sarbanes (D-Md.)

Briefly: Makes audits and financial reporting more transparent; creates a Public Company Accounting Oversight Board; strengthens independence of auditing firms; improves Securities and Exchange Commission resources and oversight

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HR 4075

Sponsor: Rep. Pete Stark (D-Hayward)

Briefly: Provides that corporate tax benefits from stock option compensation expenses match financial statements

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HR 3657

Sponsor: Rep. George Miller (D-Martinez)

Briefly: Called the Employee Pension Freedom Act; provides for improved disclosure, diversification, account access and accountability under individual account plans

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HR 5048

Sponsor: Rep. George Miller (D-Martinez)

Briefly: Prohibits corporations from making loans to their officers, directors and principal shareholders

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Congressional Resolution 333

Sponsor: Rep. Bob Filner (D-San Diego)

Briefly: Expresses the sense of Congress that the attorney general should appoint a special counsel on matters relating to Enron

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Compiled by Times librarian JOHN JACKSON

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Other Legislative Proposals

Here are the remaining bills Congress is considering in an attempt to crack down on corporate deceit.

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SB 2004

Title: Investor Confidence in Public Accounting Act of 2002

Sponsor: Sen. Christopher J. Dodd (D-Conn.)

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SB 2247

Title: Truth in Auditing Act of 2002

Sponsor: Sen. Richard Durbin (D-Ill.)

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SB 2056

Title: Integrity in Auditing Act of 2002

Sponsor: Sen. Bill Nelson (D-Fla.)

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SB 2460

Title: Shareholder Bill of Rights Act

Sponsor: Sen. Carl Levin (D-Mich.)

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HR 4098

Title: Corporate and Criminal Fraud Accountability Act of 2002

Sponsor: Rep. John Conyers Jr. (D-Mich.)

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HR 3736

Title: Financial Accuracy in Reporting Act of 2002

Sponsor: Rep. Gary L. Ackerman (D-N.Y.)

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HR 3795

Title: Investor, Shareholder, and Employee Protection Act of 2002

Sponsor: Rep. Dennis J. Kucinich (D-Ohio)

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HR 3671

Title: Independent Investment Advisors Act of 2002

Sponsor: Rep. Alcee L. Hastings (D-Fla.)

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Congressional Resolution 434

Expressing the sense of the Congress regarding the economic collapse of WorldCom

Sponsor: Rep. Ronnie Shows (D-Miss.)

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HR 3763

Title: Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002

Sponsor: Rep. Michael Oxley (R-Ohio)

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HR 3622

Title: Emergency Worker and Investor Protection Act of 2002

Sponsor: Rep. Charles B. Rangel (D-N.Y.)

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SB 1921

Title: Pension Plan Protection Act

Sponsor: Sen. Kay Bailey Hutchison (R-Texas)

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HR 5050

Title: Corporate Governance and Market Integrity Commission Act

Sponsor: Rep. James C. Greenwood (R-Pa.)

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HR 4083

Title: Corporate Responsibility Act of 2002

Sponsor: Rep. John J. LaFalce (D-N.Y.)

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HR 4084

Title: Corporate Asset Protection Act of 2002

Sponsor: Rep. Lynn N. Rivers (D-Mich.)

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SB 1940

Title: Ending the Double Standard for Stock Options Act

Sponsor: Sen. Carl Levin (D-Mich.)

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HR 3617

Title: Accountability for Accountants Act of 2002

Sponsor: Rep. Edward J. Markey (D-Mass.)

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HR 3642

Title: 401(k) Pension Right to Know Act of 2002

Sponsor: Rep. David E. Bonior (D-Mich.)

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HR 3725

Title: Investment Disclosure Act of 2002

Sponsor: Rep. Major R. Owens (D-N.Y.)

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HR 3762

Title: Pension Security Act of 2002

Sponsor: Rep. John A. Boehner (R-Ohio)

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SB 1897

Title: Fully Informed Investor Act of 2002

Sponsor: Sen. Jean Carnahan (D-Mo.)

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SB 1919

Title: Retirement Security Protection Act of 2002

Sponsor: Sen. Paul D. Wellstone (D-Minn.)

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SB 1992

Title: Protecting America’s Pensions Act of 2002

Sponsor: Sen. Edward M. Kennedy (D-Mass.)

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HR 3970

Title: Truth and Accountability in Accounting Act of 2002

Sponsor: Rep. John D. Dingell (D-Mich.)

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HR 5058

Title: Financial Accounting Standards Board Act

Sponsor: Rep. Cliff Stearns (R-Fla.)

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HR 3818

Title: Comprehensive Investor Protection Act of 2002

Sponsor: Rep. John J. LaFalce (D-N.Y.)

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HR 3693

Title: To prevent accountants from providing non-audit services to audit clients.

Sponsor: Rep. Sheila Jackson-Lee (D-Texas)

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Compiled by Times librarian JOHN JACKSON

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James Flanigan can be reached at jim.flanigan@latimes.com.