By Sophia A. Niarchos
OYSTER BAY, N.Y. – At a May 14 special event of the Society of Financial Services Professionals (SFSP), Nassau County Chapter, the names of two prominent Greek-Americans were mentioned in connection with major changes in the regulation of the financial services industry; namely, U.S. Senator Paul Sarbanes, New York State Senator and Deputy Majority Leader Dean Skelos.
A few days later, on May 19, another prominent Greek-American was the featured speaker at the Hellenic American Bankers Association (HABA) meeting held at The Princeton Club in Manhattan: Peter Peterson, whose current titles include chairman of the Blackstone Group, chair of the New York Federal Reserve Board and co-chair of the Conference Board’s Commission on Public Trust and Private Enterprise.
In addition to their common heritage, these men share a concern about a topic that, next to the war on terrorism and the war in Iraq, has been and continues to be the subject of legislation and debate in the bastions of American government and in the executive suites of American corporations, as well as in the homes of American citizens: corporate accountability.
While they all want to see the same results, their approaches to the problem have been different.
When developing the content of the Congressional Act that, with a few additions, came to be known as Sarbanes-Oxley, Senator Sarbanes’ position was that since publicly traded companies had failed to regulate themselves in terms of responsible behavior, it was time for the government to step in and do the regulating. Sarbanes-Oxley started a series of actions in the realm of corporate responsibility that will begin to effect far-reaching changes in corporate governance, financial statement disclosure, management compensation and auditor independence. It will hold auditors, accountants, lawyers, CEOs, CFOs, boards of directors, audit committees and investment banks of the 16-18,000 publicly traded companies in the U.S. accountable and disallow those who would audit public companies from engaging in such activities as valuation services, system design, actuarial services, human resource services, and investment banking, according to some industry analysts.
For New York State Senator and Deputy Majority Leader Dean Skelos, working on the state government level, the responsibility issue is related to the licensing of financial services providers. Skelos, who had proposed one bill on the subject, said other bills have since been introduced and “the chair of the Committee on Higher Education, which is responsible for licensing regulations, is working to achieve a consensus that doesn’t destroy the profession while restoring confidence of consumers that the advice they are getting is good advice.
“The whole issue is to restore confidence,” he said.
In his remarks at the Hellenic American Bankers Association event, Peter Peterson expressed concern about the breakdown in public trust, which goes beyond, as he expressed it, “my ‘few rotten apples’ theory.”
Among the surveys with which he was familiar, one revealed that 74% of Americans believe “you can’t be too careful when dealing with CEOs of even small businesses,” and on a list of professions rated for trustworthiness, CEOs were near the bottom, “below politicians.”
However, while sharing with his fellow members of the Commission on Public Trust and Public Enterprise the opinion that Sarbanes-Oxley was “appropriate and positive,” he said he was concerned about the “iatrogenic” or unintended negative side effects “if Congress gets too involved in executive compensation.” He cited the result of the 1993 $1 million cap placed on cash compensation in terms of tax deductibility, which caused “an explosion in stock options that eventually contributed to extraordinary pressures to manage short-term earnings, short-term stock prices and short-term gains.
“All this was one more enabler of a trend towards businesses being managed for the immediate gratification of short-term market speculators rather than the long-term interests of investor owners,” he told the HABA audience, adding that the result was a “pathological mutation in capitalism” from an assumption of “owners capitalism” to a system of “managers capitalism,” business run to profit its managers.
Peterson thought the alternative was that private industry and not government should voluntarily “do something about this.” The commission he co-chairs, which was convened in June 2002 to address the circumstances which led to the corporate scandals that were widely reported during 2001-2002 and the subsequent decline of public and investor confidence in companies, their leaders, and American capital markets, has issued its first report articulating a sense of principles and best practice suggestions in the areas of executive compensation, corporate governance, and audit and accounting issues as they relate to publicly held corporations. It is in the process of seeking the support of thousands of CEOS and large investors and funds for leadership in this area.
“I already see a “sea change in corporate governance,” Peterson said. “I have never seen boards of directors and CEOs as diligent and proactive.” While he recognized that this may be due in part to fear, or pride, or shame, or new regulations, he expressed his belief “that the primary driver motivating the vast majority of directors and CEOs is simply their desire to do what is right.
“I am confident that by a year from today we will witness major progress in corporate governance in America,” he concluded.
Are you concerned about government intervention in publicly traded companies or how government regulation may eventually impact private companies? Are you concerned about the impact that the stipulations of Sarbanes-Oxley or the legislation being considered by the New York State legislature will have on your financial services-related company? Please contact the author at email@example.com to register your comments.