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Analysts Debate How to Restore Confidence in US Markets - 2002-05-07

A panel of experts recently examined how to restore investor confidence in U.S. capital markets tarnished by perceptions of corruption in the wake of an accounting scandal and the collapse of a major energy company that lied about its financial condition.

For mutual fund analyst and author John Bogle, the Enron and Arthur Andersen debacles are all too common cases of corruption that can be easily avoided. Instead of safeguarding shareholders, corporate boards of directors are not asking enough tough questions to corporate management, says Mr. Bogle. He advocates far reaching changes in U.S. corporate governance, including the creation of a board chairmen who would be independent of corporate management.

"What we really need is not just education, not just more structure and staff, but some kind of power," he said. "There has to be a power base in the board that is beyond the chief executive. So I think we ought to give serious consideration to having an independent board chairman who is not the chief executive."

Mr. Bogle is the former chairman of the Vanguard Group. He developed the world's first index mutual fund.

Most U.S.-based companies have boards of five to seven directors who do not work primarily for the company. These boards typically take their orders from company management. Experts say that if, for example, Enron's board had asked tough questions and demanded answers, the company might have survived. Alan Beller, a top official of the government regulator, the Securities and Exchange Commission, says there may be merit to having independent board chairmen.

"The real issue in my view is how do you get enough independence of independent board members from the chief executive officer (CEO)," he said. "To make those folks unafraid to engage in vigorous debate at the board level. An independent board chairman is certainly one suggestion that goes in that direction."

Mr. Beller made clear that the SEC does not favor the government developing regulations on how corporate boards are structured.

Other speakers emphasized the need for transparency in making as much information as possible available to the public. The forum, sponsored by the National Investor Relations Institute, was convened to consider what needs to be done to restore consumer confidence in the integrity of U.S. financial markets.