The worst of the corporate-fraud crisis has probably passed - an outcome shaped by more stringent oversight on many levels of those who manage America's large corporations.
Government prosecutors have become busier and more numerous. Corporations and their auditors are working harder to keep their books accurately. The securities industry is cleaning up its act. Company boards are exercising more independence from management. The courts are tougher on miscreants.
It's now been a year since the Sarbanes-Oxley Corporate Reform Act was passed - a law described by President Bush "as the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt."
The law itself has come in for criticism as heavy-handed and hastily crafted. Yet it represents a core response to abuses that tarnished some of America's largest corporations, and rippled outward during an economic slump.
The crisis began with the failure of Enron in late 2001. After a series of disclosures of shady accounting and business practices at WorldCom, Tyco, and other firms, an alarmed Congress passed the measure in part to restore investor confidence in the soundness of corporate books.
"In some ways, investors are in better shape," says Joel Seligman, dean of Washington University's School of Law in St. Louis.
In a degree, rising stock prices over the last few months may reflect various reforms that have already taken place. And important changes are still to come.
The Securities and Exchange Commission, the nation's top securities and corporate regulator, has been reinvigorated.
During much of the stock market boom, from 1995 to 1998, the SEC was so short-funded it did not add one position, despite an explosion in public stock offerings on Wall Street. "The commission was just overwhelmed" as a result, says Mr. Seligman.
But Congress did boost the agency budget to a record $716 million this fiscal year, up 63 percent from 2002. Because of the difficulty of hiring qualified accountants and inspectors, the SEC has a surplus $103 million it can't spend so quickly.
William Donaldson, who replaced Harvey Pitt as SEC chairman some six months ago, is widely credited with lifting the morale at the agency and winding down various political storms.
The Bush administration, noting the one-year anniversary of the president's Corporate Fraud Task Force, boasts that federal prosecutors have obtained more than 250 corporate-fraud convictions or guilty pleas, including those of 25 former chief executives. It has charged 354 defendants with some type of corporate fraud in connection with 169 cases. That's up hugely.
But some major figures involved in scandals, such as Kenneth Lay, former CEO of Enron, have not yet been indicted on criminal charges.
Corporate books probably are in better shape today than a year ago. Under Sarbanes-Oxley, chief executive officers and chief financial officers must certify quarterly that their company financial statements comply with "generally accepted accounting practices" and present a "fair picture" of their firms' position.
"It has probably had some impact," says John Coffee, a finance professor at Columbia University, New York. If the books aren't accurate, the executives "are putting their own necks in the noose."
William Freund, an economist at Pace University in New York, sees as a result "a good deal of restoration of investor confidence."
Also, securities analysts are writing stock market reports that are widely seen as more honest, reflecting their real views rather than positions aimed at stirring up lucrative underwriting business for the investment banking side of their companies.
On July 29, the SEC approved new rules established by the New York Stock Exchange and the National Association of Securities Dealers requiring "a critical and necessary separation of research analyst compensation from investment banking" and "restoring confidence in the integrity of research," stated Donaldson.
Last April, the SEC, stock exchanges, and states led by New York Attorney General Eliot Spitzer reached a $1.4 billion global settlement of conflict-of-interest charges against 10 Wall Street firms regarding their research. Though Wall Street fears a flood of class-action suits on behalf of damaged investors, the total amount to be won likely will not stretch too far, experts say.
In July, 10.7 percent of analyst reports on stocks came with "sell" recommendations, notes Thomson First Call, a Boston research firm. That compares with 0.8 percent in July 2000.
The new, more conservative view of corporate books is also evident in the very shape of the accounting industry. Client defections and lawsuits cost Arthur Andersen, one of the top five accounting firms in the United States, its existence. The other four, as well as smaller firms, do not want to follow its path.
Investment banks, too, face Enron's ripples. Recently, the nation's two largest banks, J.P. Morgan Chase and Citigroup, agreed with the SEC and the Manhattan district attorney to pay almost $300 million in fines and penalties to settle accusations that they aided Enron in misrepresenting its true financial condition for years before the company failed.
The settlement suggests that corporate advisers will be held responsible for financial damage if a bank transaction with a firm, though legal, results in an outcome that deceives investors.
In addition, Sarbanes-Oxley called for the creation of a Public Company Accounting Oversight Board to take over the regulation of accounting firms from a self-regulatory body. It could take three to five years to fully reform accounting practices, says Lynn Turner, an expert at Colorado State University.
Corporate boards are becoming more independent of management. Four-fifths of some 150 large companies in a July Business Roundtable survey reported that at least 75 percent of of their directors are "independent" - outsiders rather than people who also hold top management posts. The complaint has been that directors are subservient to CEOs, who also generally sit on boards.
Paul Hodgson, an analyst at The Corporate Library in Portland, Maine, sees "a fair amount of turnover and turmoil" in corporate boards as they strive to meet tougher rules by stock exchanges regarding the independence of boards and their committees on audits and pay.
Some boards are complaining about the difficulty of finding suitable new directors because of the greater liability they face should they somehow overlook corporate malfeasance.
Courts, reflecting public opinion, have been tougher in dealing with corporate fraud and predatory management.
A shift in public opinion toward corporations has also made company executives dealing with charges of malfeasance likelier to consider a settlement rather than face a jury.