Bay Area executives, corporate directors and investors praised President Bush's speech on corporate accountability Tuesday, calling it a step in the right direction and a boon to honest companies.
They were split, however, on how effective Bush's proposals would be in preventing future wrongdoing and on whether they will deter seasoned executives from joining boards of directors and becoming CEOs.
Peter Jackson, CEO of Orinda-based software maker Intraware, said Bush's speech helped paint aggressive accounting as not just potentially illegal but also morally wrong.
"Bush highlighted today that it is a black or white issue -- there is no gray area," Jackson said. "CEOs like myself have to take the high road all the time, and it can be tough, because you have everyone yelling at you, from your shareholders to your mother. But I don't think there is ever a gray area -- there's only one way and the other is illegal and you should go to jail if you take it."
Indeed, Bush's proposal would double the maximum prison term for certain types of fraud. The president also said executives who profit from false accounting should have to forfeit the compensation arising from the deceit and be banished from running public companies ever again.
Those sorts of measures "go a long way in rebuilding the sort of credibility that's necessary with investors," said Eric Flett, portfolio manager at Bay Isle Financial in Oakland and a Moraga resident.
Nevertheless, said Flett, the market has already sustained substantial damage. "It's nice window dressing, but the cows are out of the barn. It's not going to do anything about Worldcom and Enron."
Or, as KLM Capital CEO Eric Mok puts it, "it's a little too late."
Watching the market's drop Tuesday, San Jose-based Mok, who serves as a director at ESS Technologies, said the speech "didn't do a lot. But overall it was a movement in the right direction."
Skip Battle, CEO of Internet search company Ask Jeeves in Emeryville, said the proposal reflects good corporate common sense and should help deter financial misrepresentation, if only in the future. "These are not leak-proof bags -- stuff is going to leak through," he said. "But these rules and the attendant market response are going to dramatically lessen these (sorts of problems)."
Public accounting professor Brett Trueman at the University of California -- Berkeley agreed. "There's little you can do to get CEOs to change their nature by themselves," said Trueman. "You have to get them to recognize that if they do engage in these irregularities they will get caught and they will face penalties, so that they think twice."
Even executives who had not watched Bush's speech were encouraged that he had taken steps to address what are obviously mounting problems in the business world. "Generally, I am supportive of all this," said Grant Inman, a board member at Alameda-based Wind River Systems. "I think everyone has been too complacent for too long."
Of course, it is possible for the backlash against corporate irresponsibility to go too far. Stiffer penalties for financial wrongdoing could scare off potential business leaders, both in day-to-day management and on boards of directors. Battle says many of his colleagues are avoiding directorships, which do not offer the financial rewards of CEO gigs. "Why would someone put their personal reputation and wealth on the line for $30,000 per year?" he asks.
"What Bush doesn't think about probably is that there is a supply and demand issue associated with the job of CEO that's going to get worse now," said Jackson. "Because there is so much pressure on both board members and CEOs from a legal perspective and disclosure perspective -- these guys are sticking their necks out."
Bruce Cain, a professor of political science at the UC- Berkeley and a Lafayette resident, said Bush had to temper his honesty and moral rectitude with an imperative to keep the markets from panicking.
"He's trying to do two things: He's trying to address a problem that could really hurt the Republican party in the 2002 elections at a time when they are competing for control of the House and Senate," said Cain.
"At the same time, his second political imperative is to not go so far as to scare the business and investment community into some huge market decline which causes economic problems, which could also do him."
"The key is to find some balance, which is what I took that speech to be. So, if you watch the speech, he didn't say, 'These practices are rampant in the business community,' which a lot of us believe to be the case. He said, 'It's a few bad apples,' which we don't know to be true.
It could be more than a few bad apples. He was trying to assure small investors to stay in the market, I'm sure."
Ryan Tate is a general assignment business reporter. Reach him at rtate@cctimes.com.
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