Bush: Make CEOs Pay

Singer Adam Levine of Maroon Five, center, accepts an award from BMI Vice-President Barbara Cane, left, and BMI President Del Bryant, right at the BMI 57th Annual Pop Awards in Beverly Hills, Calif. on Tuesday, May 19, 2009. AP Photo

In his most direct response to the Enron scandal, President Bush called Thursday for stricter accounting rules and tougher disclosure requirements for corporate bosses, CBS News Correspondent Peter Maer reports.

"A good business always respects the boundaries of right and wrong," the president told a meeting of business executives.

He said the federal government should strip company chief executives of ill-gotten bonuses and create an agency to monitor the accounting industry.

Mr. Bush did not mention Enron, but his proposal reads like a response to the biggest bankruptcy in the nation's history.

"We've seen lately just how important these standards are and the harm that can follow when they are ignored," he said.

Enron, the Houston-based energy-trading company which has been Mr. Bush's most generous corporate political backer, hid more than $1 billion in debt while its auditors endorsed its financial statements.

Many investors have been unnerved by Enron's collapse and distrustful of the accuracy of the financial reports of big companies in general, contributing to a volatile stock market.

"The whole design of free-market capitalism depends upon free people acting responsibility," the president said at a business awards ceremony. "Business people must answer not just to the demands of the markets or self-interest, but to the demands of conscience."

With Congress considering legislative action of its own, Mr. Bush released a 10-point plan that bundled various proposals made recently by the head of the Securities and Exchange Commission and by lawmakers.

One proposal would create an independent regulatory board under the supervision of the SEC to develop standards of professional conduct and competence. The board would monitor, investigate and enforce its "ethics principles" by punishing offenders.

Congress, the SEC and the Justice Department are investigating Enron and the role of its longtime auditor, the Arthur Andersen LLP accounting firm, in Enron's collapse. The company entered the biggest corporate bankruptcy in U.S. history on Dec. 2.

SEC Chairman Harvey Pitt, who was appointed by Mr. Bush, has proposed a new private-sector body to regulate the accounting profession. It would be dominated by executives and experts from outside the accounting industry.

But some experts say a new federal regulatory agency should be created for the accounting profession, which is currently self-policing.

Under the Bush proposal, the government would bar external auditors from performing any other services such as consulting for the same corporate client if that other service compromises the independence of the audit. Andersen performed both auditing and consulting for Enron.

Mr. Bush also proposed that company chief executive officers would be forced to pay back bonuses and other "incentive-based" compensation in cases of accounting restatements stemming from misconduct. The White House didn't say who would investigate or enforce this provision.

Some of the president's proposals would require new laws; others could be simply implemented by the SEC.

Enron executives got bonuses totaling some $320 million last year alone as rewards for hitting stock-price targets. The targets were reached at the same time investigators say Enron officials were improperly inflating company profits by hundreds of millions of dollars, thereby boosting share prices.

The company issued restatements that sliced nearly $600 million off its earnings.

It wasn't clear whether Mr. Bush's proposal could apply retroactively to Enron executives.

Mr. Bush also would force CEOs to personally vouch for the veracity of information in their financial statements. Top executives who abuse their power could be banned from any corporate leadership positions.

Moreover, they would be forced to tell the public promptly when they sell or buy company stock for personal gain.
  • Francie Grace

Comments

Watch CBSN Live

Watch CBS News anytime, anywhere with the new 24/7 digital news network. Stream CBSN live or on demand for FREE on your TV, computer, tablet, or smartphone.