FOR all his rhetoric about “hard time” for corporate criminals, you would have thought that President Bush actually favored the business-governance bill he signed into law Tuesday - after fighting it virtually every step of the way in Congress.
The truth is that Mr. Bush latched onto the legislation at the last possible moment, when it appeared he was going to be trampled by a bipartisan stampede to shore up federal laws governing accounting regulation and corporate responsibility.
Brazenly up front during the bill-signing ceremony in the East Room of the White House was Rep. Mike Oxley, the Findlay Republican and chief apologist for the accounting industry, who desperately tried to water down the measure. Conspicuous by his absence was Vice President Dick Cheney, who is under investigation by the Securities and Exchange Commission for actions as a CEO that led to abuses of the type that Congress is now trying to clean up.
And, not so incidentally, the new law bans the type of low-interest loans corporations routinely lavished on their executives and directors, and from which Mr. Bush profited handsomely when he was on the board of a struggling energy company in Texas.
There is no apparent consensus among executives, accountants, and lawyers on whether the new law will radically change how corporate America operates, but Congress at least has gotten the attention of the business community, and the SEC will get a substantial budget increase to see that reform happens.
From the standpoint of bolstering investor confidence in corporate financial statements, the law does not go quite far enough. Due to intense lobbying by high-tech industries, lawmakers dropped a requirement that stock options be counted as expenses, and therefore deducted from profits, on company balance sheets. Thus, corporations will still be able to pad executive compensation while overstating their overall value. Fortunately, some responsible companies already have decided to stop this misleading practice.
Such a rule could be implemented, however, by the new independent accounting oversight board, which will replace the self-regulation that hasn't worked with the industry. To further tighten regulation, accountants no longer will be able to simultaneously serve as a company's auditor and business consultant, and accounting firms will have to rotate partners among clients every five years.
Under the rubric of responsibility, chief executives and financial officers will have to personally certify financial reports, and when a company's earnings must be restated due to fraud the executives will have to forfeit any profit and bonuses.
While some argue that the increased criminal penalties in the bill for securities fraud and destruction of financial documents are merely window-dressing, they are a step toward equity. Corporate big shots who steal millions of dollars finally will be subject to penalties approaching those for a common criminal who holds up the local carryout.