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American Morning
Bush Getting Mixed Reviews For Plan to Crackdown on Corporate Criminals
Aired July 10, 2002 - 08:07 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: Back to the president's speech. President Bush is getting some mixed reviews for his plan to crackdown on corporate criminals. Many market watchers say tough talk is not enough to rebuild confidence in American business. Even the market continued to dive after the president's speech to a group of business leaders.
(BEGIN VIDEO CLIP)
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: When abuses like this begin to surface in the corporate world, it is time to reaffirm the basic principles and rules that make capitalism work -- truthful books and honest people, and well enforced laws against fraud and corruption.
(END VIDEO CLIP)
ZAHN: So what will it take to bolster investor confidence?
Joining us now is Joseph Nocera, executive editor of "Fortune."
Good to have you with us. Good morning.
JOSEPH NOCERA, EXECUTIVE EDITOR, "FORTUNE": Nice to be here.
ZAHN: I wanted to start off by quickly reviewing some of the editorials that some of you might have already seen this morning in the "New York Times," the paper basically saying the president didn't go far enough. They said, "The biggest disappointment was Mr. Bush's failure to insist on a forceful reform of the accounting industry."
Even the "Wall Street Journal" wrote, "Coming so long after the Enron scandal first broke and amid election season, the speech was widely and accurately described as an exercise in defensive politics."
Was there any part of the speech that worked for you?
NOCERA: Well, in general I definitely am of the dollar short, you know -- it's too late. And he, the best thing in it was the proposal to have a task force, sort of a corporate fraud task force at the Justice Department. And the reason that's important is because the SEC does not have the ability to bring criminal charges by itself. So -- it can bring civil charges, but to get somebody, to put somebody in jail, it has to go to a U.S. attorney somewhere and say please, please, please bring my case.
And these are difficult cases, complicated cases to bring, which is why, by the way, no Enron cases have begun yet, you know, and so on and so forth.
ZAHN: Do you think we'll see anybody go to jail as related to the Enron case and WorldCom as a result of this task force?
NOCERA: I think it's more possible now than it was six months ago. They need to put somebody in jail and I think they know that. They need to send that signal. But, you know, one of the reasons that the market started to spiral downward even before the speech was ending, frankly, was because the marketplace itself, investors, the investing community, was disappointed with the response.
ZAHN: But we should also, to be perfectly fair, there were also some negative earnings reports that came out, were there not, that contributed to the market going down yesterday? It wasn't the president's whole...
NOCERA: Oh, absolutely. But if you watched -- I hate to, you know, if you watched the ticker during the speech, you could see boom, boom, boom, boom, boom, boom. It was ugly.
ZAHN: What else has to be done then?
NOCERA: Well...
ZAHN: I mean there's been a lot of debate...
NOCERA: Right.
ZAHN: ... over an independent body reviewing accounting procedures at firms.
NOCERA: Right. You do need accounting reform. You do need to separate, you know, the accountants from the consulting, which is a topic he avoided in the speech. Here's the big thing. The Bush administration's position is a few bad apples in generally a good system. There is another view which is that things have happened during the bubble that have created some systematic, systemic problems that need to be fixed having to do with the amount of stock options corporate executives get and the incentives that has given people to commit fraud, frankly.
ZAHN: And that was not touched upon yesterday.
NOCERA: It was touched upon in small ways, but not in large ways.
ZAHN: OK, remind me of where it was touched upon...
NOCERA: Well...
ZAHN: ... because everybody's talking about that being a glaring deficiency in his speech. NOCERA: Right.
ZAHN: In terms of options being recorded as an expense.
NOCERA: Well, he didn't talk about options being recorded as an expense, but he did talk about that shareholders will now be allowed to vote on options packages, which I think is a big thing because, you know, they could just ram this stuff through and the shareholders, who, by the way, it is their company and it is their stock that's being diluted when somebody gets a big options package, have had no say in this whatsoever.
So that's basically to the good.
He also said that if somebody is convicted, they should have to give all their money back. And that's a good thing, too, although I don't think that goes nearly far enough. I mean...
ZAHN: What else would you ask for?
NOCERA: Well, if a company goes bankrupt. You know, even if there's no fraud involved and somebody's taken $200 million, $300 million, $400 million in options, you know, I think they ought to be -- I think they ought to have to give that back. I also think that if you started to expense options -- and the reason this is important, even though it's complicated -- if you started to expense options and it becomes a balance sheet and income statement issue, boards will become much more reluctant to give these mega packages.
ZAHN: But I don't -- sorry to cut you off there.
NOCERA: OK, go ahead.
ZAHN: I just wanted final advice from you. Bottom line to the investor out there who has seen, in some cases, the 401Ks wiped out completely by this market, what do you say to them this morning?
NOCERA: There's no...
ZAHN: Wait? Be patient?
NOCERA: On one level you can say this, too, shall pass. But on the other hand, I mean I think it's going to take a long time, a year, more for this to wash through the system and for us to regain our confidence again.
ZAHN: Joseph...
NOCERA: I'm sorry to say it, but that's the way I see it.
ZAHN: Don't you hate to be the bearer of bad news?
NOCERA: Yes, I do.
ZAHN: Joseph Nocera from "Fortune" magazine, thank you very much for being with us this morning. NOCERA: Thank you.
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