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Former US Central Banker Concerned Over Public Perception of Corporate Mismangement - 2003-04-03

The former head of the U.S. central bank says public skepticism about corporate mismanagement and poor government oversight has reached worrying levels. Paul Volcker, the former chairman of the U.S. Federal Reserve Board, says government takes some blame for the spate of the recent corporate scandals in the United States.

The chairman of the U.S. Federal Reserve through most of the 1980s, Paul Volcker, is critical of the failures in corporate governance that led to the scandals at Enron and its accounting firm, Arthur Andersen, which, he says, were the manifestation of a wider problem. He listed some corporations that have been subject to prosecution or censure.

"WorldCom, Tyco, Global Crossing, Xerox, Qwest, Imclone, securities analysts in virtually all the prestigious Wall Street firms, conflicts in the big accounting firms," he said. "Most recently, now, Health South. Who knows what comes out tomorrow. To me, they're all submerged icebergs endangering the flow of investment in the commercial ocean."

The former central banker says the blame must be shared by many. "You can ask reasonably where the boards of directors have been. Where have the lawyers been who, in many cases, have aided and abetted this process? Where are the financial analysts who have been subject to revealed conflicts of interest? So there's been a breakdown, I think, of standards within and outside companies pretty broadly," he said.

He says the problems resulted from the booming economy of the 1990s, when people started to think the old rules no longer applied.

Mr. Volcker says federal regulators must share in the blame, but their lack of supervision stemmed partly from structural problems in the federal government. The former official recently chaired a private commission on public service, which issued a report in January calling for streamlining and focusing of the federal bureaucracy. He applauds the recent creation of a Department of Homeland Security, which absorbed a number of other government departments. He hopes to see similar agencies organized to accomplish specific missions.

He says examples abound of overlapping jurisdictions, which he says need reorganization. "Seven agencies administer 40 different job training programs in the federal government; four agencies have responsibilities for land management; 11 agencies administer childcare programs, and on and on," he said.

Mr. Volcker says the lack of confidence in corporate America is matched by skepticism toward public officials. He notes that just one-third of Americans said in a recent survey that they "trust the government to do the right thing most of the time."

He says in times of war, the U.S. public gives officials the benefit of the doubt, but says the challenge facing the country is not just winning the war, which he is confident will happen, but winning the peace that follows by strengthening the nation's governing institutions.