|
To
Your Wealth Column Corporate
Reform Bill Designed to Restore
Investor Confidence BY
MICHAEL P. HAUBRICH, CFP |
|
|
|
Today marks a significant day in
the annals of the financial community as the New York Stock Exchange votes to
accept or reject recommendations designed to impose greater responsibility on
its member companies. Tuesday, President Bush signed
into law a corporate reform bill which is aimed at rooting out corporate
fraud and corruption. These actions are efforts to stem the momentum of panic
that has recently eroded investor confidence and led to widespread sell-offs
and history-making volatility. While the Enron and WorldCom
debacles have captured center stage and served as a catalyst for sweeping
reforms in NYSE and accounting regulations, it’s important to note that these
two companies, while immense in terms of their emotional and financial
significance, represent about a mere one percent of the total 2800-member
exchange. What that means to investors is that, in spite of a relative
handful of noteworthy scandals, there are still a lot of good, honest,
productive, contributing companies remaining in which we can and should have
complete confidence. In a recently released report from
the NYSE, entitled Straight Talk for Investors, chairman and CEO, Dick
Grasso, wrote, "We’re not looking at a
corporate system in need of a complete makeover. We must remember that for
every company that took shortcuts, hundreds of companies have gotten it right
each day and take very seriously the special place of trust they
occupy." But intellect and facts aren’t
always enough to overcome emotional onslaughts that lead to contagious panic,
paving the way for public displays of action such as the arrest of Adelphia top executives last week. Investors and, in
fact, the world, need to see activity replaced with action and the NYSE
recommendations and the corporate reform bill are poised to demonstrate that
confidence can and will soon be restored. Helping to shape and lead
corporate-governance is not new to NYSE. In fact, they’ve been at it for 150
years, establishing rules of conduct for its members and brokers, even before
the SEC was established in 1934. Today, the NYSE continues to be a
frontrunner in recognizing the need for increased regulations and drafting
recommendations that clarify current rules or establish new requirements. Four months ago, before consumer
confidence fell to the current doldrums, the NYSE Corporate Accountability
and Listing Standards Committee began the intensive information gathering
process that allowed them to formulate the recommendations designed to
restore investor confidence. Among those recommendations, which go to vote
today, are new requirements that call for listed companies to adopt a code of
business conduct and ethics and prompt disclosure of any waivers of the code
for directors or executive officers. Another new proposed requirement calls for
CEOs to annually certify that they are not aware of any company violations of
NYSE rules, while still another demands that listed
companies establish an orientation program for new board members. Proposed enhancements to existing
requirements calls for a majority of a board to be comprised of independent
directors, that each company have separate audit, nominating, and
compensation committees and that each of these committees be comprised solely
of independent directors, and that the chair of the audit committee must have
account or financial management experience. There are numerous other proposed
additions or enhancements that all share the common goal of strengthening the
checks and balances, re-establishing credibility, and providing a drastically
needed boost to investor confidence. Meanwhile, the Congress is doing
its part to remedy situations of corporate misconduct by establishing new
regulations that call for jail terms for obstructing justice, preserving key
documents for five years, establishing new oversight boards to set standards
and investigate audit failures, adding new disclosure requirements to ensure
that important information is not kept off the books, and requiring that CEOs
and CFOs certify the accuracy of financial reports. The corporate reform bill
would also increase the SEC budget by more than 50% allowing that agency to
address its limited staff issues. With the proposals of the NYSE
which are expected to be adopted today along with the new corporate reform
bill, investors are being given every opportunity to feel more secure in
investing in companies that have made and continue to make our markets
strong. Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in |