Without ever once mentioning the financial collapse or scandal that has pervaded Enron Corp., President Bush last Thursday called on federal regulators to mete out stiffer punishments to corporate officers who abuse their positions and provide “grossly inaccurate” information to investors. Bush also said he favored the creation of an independent board to oversee the accounting profession.

The Securities and Exchange Commission (SEC) “should be allowed to punish officers who clearly abuse their powers by banning them from ever serving again as officers or directors of publicly held corporations,” he said in speech at the Malcolm Baldridge National Quality Award Ceremony in Washington, DC. He urged the agency to make existing regulations governing corporate behavior “clearer,” and its penalties “tougher.”

If a CEO signs financial statements (quarterly and annual reports) that are “grossly inaccurate or the result of serious misconduct,” any stock bonuses that he or she receives from the company “should be returned to the company’s treasury on behalf of its shareholders,” Bush noted. When signing financial reports, a CEO is “giving his word” as to the “veracity and fairness” of the information, “and should stand behind it.”

Bush identified a number of reforms needed at the regulatory and corporate levels, such as tougher crackdowns on violators, more honest and frequent disclosures of financial information, closer scrutiny of the accounting industry and greater corporate responsibility. “Reform should begin with accountability, and [it] should begin at the top.”

He said officers of publicly held corporations should be required to disclose within two days their sales and purchases of company stock. They “should not be allowed to secretly trade their company’s stock.”

The president proposed the formation of a regulatory board to hold accountants to the “highest ethical standards.” The SEC “should exercise more effective and broad oversight of accounting standards,” as well as prohibit a company’s external auditor from conducting internal audits.

Likewise, individual auditors “should [hold a] company’s financial controls to the best industry practices, and give those findings to the [company’s] audit committee,” he said.

Tougher standards from Washington and the states on public disclosure and accounting are critical, Bush noted. “We’ve seen lately just how important these standards are, and the horror that can follow when they are ignored.” Most businesses, he said, “do not cut ethical corners” and “respect [the] boundaries of right and wrong,” but he cautioned regulators to be vigilant of the few who do not follow the rules.

The reason that a “single bankruptcy” — referring to Enron, but not citing it by name — caused to much havoc in the market is that 80 million Americans now own stock, the president said. While such broad stock ownership by the public is an “incredibly positive development,” it also means that the officers of publicly traded companies “owe a special obligation to these investors, many of whom have put their savings and future security on the line.”

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