THE PLAN TO REFORM CORPORATE AMERICA

According to The Wall Street Journal, the following exchange took
place between U.S. Treasury Secretary Paul O'Neill and President Bush.
Commenting on U.S. corporate scandals, Mr. O'Neill is reported to have
said: "A kid who gets caught with a half a gram of marijuana can serve
more time than an executive who loses tens of thousands of jobs." To
which the President is alleged to have responded: "You're right."

That should do it. When Mr. Bush addresses the subject in his speech
today, he will likely declare that it's time to get rid of those awful
marijuana laws that are just filling U.S. jails with innocent kids.
Either that or he's going to create a new corporate crime: Any
executive whose company loses thousands of jobs will now get sent to
jail along with the kid caught with marijuana.

Anything is possible.

While it may appear unseemly to trivialize serious breaches of
corporate law, trivialization is the order of the day. Anyone who
spent more than half an hour yesterday watching the sparring between
demagogic politicians and WorldCom officials at a Congressional
committee hearing would know that the business of America isn't
business, it's having a political field day trashing everything that
comes across one's mental screen. Accounting? "Should we have the
government audit corporations?" asked a dead-serious Paul Kanjorski, a
Pennsylvania Democrat, of Melvin Dick, the former Arthur Andersen
partner who audited WorldCom but failed to notice that the company had
capitalized US$3.8-billion in operating expenses. Bernie Ebbers and
Scott Sullivan took the Fifth, leaving poor Mr. Dick and Salomon
analyst Jack Grubman to field an endless series of questions designed
to embarrass the witnesses and make the politicians look good.

The politicians -- along with CNBC and CNN on-air bimbos -- had a
particularly good time ridiculing Mr. Dick because he hadn't found out
since June 25 how WorldCom's accounting "fraud" had occurred. "Aren't
you there in the company?" asked one belligerent congressman of Mr.
Dick, who had to reply that, no, he wasn't. Andersen no longer held
the WorldCom audit, a loss Mr. Dick might have said occurred at least
in part because Andersen had been driven out of the audit business by
the government.

But fear not. Soon America will have Congressman Kanjorski running
corporate audits.

Whether it comes from Congress or the Securities and Exchange
Commission, it looks like the United States of America, home of the
greatest economy in the world thanks to a free market corporate
system, is about to start taking over the business of auditing the
vehicles that created its success.

No wonder investors are rushing out of equities.

Who would invest in a system where every politician, bureaucrat,
regulator, consultant, organization, agency chief and hog dealer on
the planet has a plan to reform Corporate America that just might make
it through Congress or into the President's speech.

Talk about trivialization. Harvard prof Rakesh Khurana trotted out his
theories about the inherent flaws in the concept of the CEO as
charismatic leader. Uhh. How about Jack Welch, Warren Buffett, John
Malone, Lee Iacocca, not to mention thousands of others over 100 years
of successful one-man shows from Rockefeller to Henry Luce and Henry
Ford to Bill Gates. The SEC wants all the remaining non-charismatic
CEOs to sign documents pledging that the financial statements are free
of fraud.

What's fraud?

Not defined, and any CEO who signs such a declaration is simply taking
a gamble. There's no way a CEO can certify against fraud, especially
those that get made up after the fact.

Certainly no auditor would sign a statement assuring fraud-free
numbers. And what about the board of directors and the board's audit
committee. Reformers now insist that the audit committees of boards
should be composed of outside directors who take a direct hand in
audit oversight.

But since that won't work -- how can outsiders be plugged into the
details of the daily accounting grind and still remain outsiders -- it
is now advised that the chairmen of such audit committees should be
people familiar with accounting or financial management.

Another bandwagon running out of horsepower is the executive stock
option. Using options was one of the last great fads of the corporate
reformers.

We needed to "incentivize" the indolent but charismatic CEO with big
perks. The idea was so hot in 1993 that the U.S. Congress passed a law
that said any compensation paid to a CEO above $1-million could not be
deducted as an expense -- unless that compensation was "performance
based." How much of a role did that tax rule play in creating the
stock option bonanza?

The patently useless reform of separating the CEO from the board
chair, a British invention, is now part of the U.S. reform agenda.

Next thing you know the U.S. will be looking to the French model,
which gives the President power to appoint CEOs.

Before this onslaught of reforms, significant and trivial, the role of
the U.S. President today is to bring some reality to what has become
an international assault on confidence in the American corporate system.

The President's speech, said White House spokesman Ari Fleischer
yesterday, "is going to be aimed at restoring that confidence." If his
plan includes throwing CEOs in jail for causing job losses or business
failures, and other wonky ideas, it won't work.