Institutional investors have formed little consensus on the wide range of corporate governance reforms proposed by President Bush, members of Congress and others, despite universal condemnation of the flagrant actions of corporate executives and auditors in the Enron Corp. collapse.
Few agreed how reforms, if enacted, would change corporate procedure.
"These proposals shouldn't affect the practices of well-run companies," said Carolyn Brancato, director-corporate governance, Conference Board Inc., New York.
"It will change every single public company in the U.S., and I hope every shareholder as well," said Nell Minow, editor, The Corporate Library, Washington. But, she complained, the proposals "are very stick oriented, not carrot oriented."
Some experts worried about how sweeping the reforms might be.
"This could be a great example of a hard case making bad law," said James T. Hale, executive vice president, general counsel and corporate secretary, Target Corp., Minneapolis, whose company has been acclaimed for its corporate governance practices. "There is the attitude that because there are one or two egregious cases, somehow we need legislation for everyone. My biggest fear is there could be an overreaction."
Damon A. Silvers, associate general counsel, AFL-CIO, Washington, said the Bush proposals "approach what happened at Enron as a problem of bad actors.
"None of the proposals get at the systematic conflicts of interests that we believe are the root causes of what happened at Enron and a lot of other companies," Mr. Silvers said.
Mr. Silvers said he prefers a bill sponsored by Rep. John J. LaFalce.
At best, many see the corporate governance proposals as a "good start," in the words of both Charles M. Elson, professor of law, University of Delaware, Newark, and director of its Center for Corporate Governance, and Richard Koppes, an attorney with Jones Day Revis & Pogue, Sacramento, and former general counsel at CalPERS.
Mr. Bush issued a 10-point proposal that includes:
* Expanding the "list of significant events requiring prompt disclosure between reporting periods."
* Disclosing within two business days "significant transactions involving officers' and directors' purchase and sale of company stock," instead of current rules that might delay reporting for a year or more.
* Allowing the Securities and Exchange Commission to ban chief executives and other officers "who clearly abuse their power" from serving in any corporate leadership positions of publicly traded companies.
* Setting up an independent regulatory board for the accounting profession, under the supervision of the SEC, to develop standards of conduct and competence and to enforce them.
* Having the SEC establish guidelines for "audit committees to prohibit an external auditor from performing any other service to an audit client, if the service compromises the independence of the audit."
Competing proposals introduced in Congress include:
* H.R. 3818, the Comprehensive Investor Protection Act, introduced by Mr. LaFalce, a wide-ranging corporate governance reform measure that includes more disclosure and increases regulation of auditors.
* S. 2004, introduced by Sen. Christopher Dodd. It seeks to improve the quality and transparency in financial reporting and independence in audits, and enhance the standard-setting process for accounting practices.
* H.R. 3763, introduced by Rep. Michael G. Oxley. It is designed to improve "the accuracy and dependability of corporate disclosures."
* H.R. 3745, the Corporate Charitable Disclosure Act, introduced by Rep. Paul E. Gillmor, which would increase disclosure of corporate charitable contributions, in part to aid in scrutiny of conflicts of interest.
* H.R. 3617, sponsored by Rep Edward J. Markey, which would withdraw certain benefits of the Private Securities Litigation Reform Act from auditors that perform non-audit functions.
* S. 1896, sponsored by Sen. Barbara Boxer, which would prohibit accounting firms from providing management consulting services for the companies they audit and any other non-audit related services that could result in a potential conflict of interests or otherwise impair the independence of the auditor.
* H.R. 3795, sponsored by Rep. Dennis J. Kucinich, which would establish a Federal Bureau of Audits within the SEC to conduct audits of all publicly registered companies.
Target's Mr. Hale said of the proposals, "It's unfortunate if you start from the premise that most corporations are behaving badly."
Mr. Hale had an overriding remedy: "There should be open and honest communications between management, the board of directors, shareholders and the public.
"If you do that right it will be right, regardless of the rules and regulations that are adopted. But if you do that wrong it will be wrong, regardless of the rules and regulations."
Herbert A. Denton, president, Providence Capital Inc., New York, an activist shareholder, said that instead of a host of new regulations, enforcement of existing regulations and penalties for violating them should be bolstered.
Instead of just requiring violators to disgorge profits, as the Bush proposal would do, Mr. Denton said violators also should pay triple damages.
Mr. Hale, meanwhile, said "it's flat out wrong to require separation" of auditing and consulting work.
The AFL-CIO's Mr. Silvers favors a complete separation "The Bush proposal only separates certain auditing and consulting activities," he added.
One idea received near-unanimous endorsement from those interviewed: speeding up disclosure of stock sales and purchases by corporate insiders.
Mr. Elson would reach further. "I think it ought to be very difficult for executives or directors to sell significant amounts of stock" in their company, he said. "Executives and directors should not sell stock (in their companies) unless they leave the board (and company), or under extraordinary circumstances." Otherwise, he said, "it only makes it easier to manipulate the stock price."
At the same time, Mr. Elson thinks "each director should have a personally meaningful long-term equity stake, at least 100,000 shares. It locks them into the company's fortunes."
At least 80% of corporate directors should be independent, not just non-employee directors. Independent directors, he said, should have no financial connections to their companies, such as for consulting work. Otherwise, "it makes it hard to look at the company objectively," he added.
One major difference among those interviewed concerns an oversight board for the accounting profession.
Mr. Hale said existing accounting groups ought to be given a chance to come up with proposals on accounting oversight before a board is created by legislation.
Ms. Brancato said the oversight board "might be one of the farthest reaching (proposals) in its impact on the markets, even though it looks like a sleeper" issue.
Ms. Brancato said the oversight board might need to be separate from the SEC because "I don't know if the SEC has people to do this."