Corporate America faces era of oversight

Seven months after Enron Corp. went broke, a new regime of governance and oversight is settling in that could help the nation begin to surmount a rare period of economic malaise.

Thursday's congressional passage of the biggest tightening of corporate regulation since the 1930s is expected to help restore at least a modicum of shaken trust in the quality of corporate bookkeeping.

At the same time, the sight of executives from Adelphia Communications being hauled off in handcuffs this week sends a signal that new levels of accountability are, in fact, more than just rhetoric.

Some are even wondering if the nation has begun to turn the corner on a period of economic insecurity and stock-market despair.

Many of the economic fundamentals certainly remain strong. Corporate profits, which drive much of the movement on Wall Street, are doing better than are often portrayed in the headlines. Productivity, a key to economic growth and rising incomes, has held strong. Overall economic growth, while slowing, is believed to still be around 3 percent.

But weaknesses and worries persist. The all-important housing market, for instance – whose rise has acted as a counterweight to the stock-market decline – is showing signs of leveling off.

More corporate scandals will undoubtedly surface as well, which could continue to unnerve Americans. Late Wednesday, media giant AOL Time Warner Inc. said the Securities and Exchange Commission has opened an inquiry into accounting practices in its online division.

The tough tone in Washington is expected to alleviate at least some public anxiety about the state of corporate integrity. The bill that President Bush will sign as early as today establishes an independent oversight board, requires corporate officers to vouch for the fairness and accuracy of financial statements, and imposes strong criminal penalties for those who commit fraud.

"[It's] the right bill at the right time," says John Dillon, chairman of The Business Roundtable, an association of chief executive officers. "The agreement will help to restore investor trust and put the financial markets on the road to recovery."

But the measure could also create new uncertainty. Some in the business community don't know how seriously the reforms will be enforced – or how far Washington may be moving back into corporate life after decades of deregulation.

"It's new fraud statutes that no one understands, new statutes of limitations no one understands, new corporate law and accounting law," says Bruce Josten, executive vice president of the US Chamber of Commerce. "Business people like to know what the rules of the road are."

CENTRAL to how effective the law will be is the vigor with which federal regulators will monitor corporate books and behavior. "The key is whether the Justice Department decides to enforce it vigorously," says Stanley Collender, a financial analyst at Fleishman-Hilliard, Inc.

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