As the Enron affair mushroomed into a sweeping indictment of business ethics, President Bush turned to Treasury Secretary Paul H. O'Neill for help. The flinty former Alcoa CEO's mission: study ways of improving corporate governance and accountability among the nation's leading companies. O'Neill will soon send his report to the White House. But on Feb. 12, he provided a glimpse of his thinking in an interview with BusinessWeek Senior Writer Rich Miller and Senior Correspondent Mike McNamee. Edited excerpts of their conversation follow:
Q: Is Enron's collapse unique or a symptom of widespread corporate accounting problems?
A: There are shrill voices saying that this means everything is bad, that we've got fundamental flaws. While we may need to do some repair work, I don't believe that our system is broken. We have the lowest capital cost of any place in the world because we've demonstrated that investors' money is safer here. You're less subject to the risk of fraudulent behavior here than you are elsewhere. [Yet] because of the shrillness and the [politicians'] inclination for haste, there's a risk that compensating action ends up doing some damage. We need to proceed with some speed. But we also need to proceed with care.
Q: What's your idea of a key reform?
A: We need to strengthen the duty and accountability of CEOs so they understand that it's not good enough just to be good on CNBC. We should require a CEO to provide on a regular basis everything that's necessary for an investor to know [about company finances. Things like] identifying the 5 or 10 most important things investors should pay attention to when they're considering an investment in the company. Then you have a clear line of action [against] CEOs who leave something [material] out. It puts them in a position of being guilty of incompleteness, or misrepresentation -- or stupidity.
Q: Won't these statements trigger nuisance lawsuits against CEOs?
A: Not if people do the right thing.
Q: What's your view of the role of outside accountants?
A: They really should have the responsibility for saying that management has given investors what they ought to know to evaluate the business. [That means] certifying that all of the systems that are necessary for financial stewardship are working properly and that all of the material necessary for an investor to make an investment decision is provided. An extension of this would be a requirement for outside auditors to issue publicly a grade, on the scale from A to F, of the company's financial-control systems, processes, and procedures.
Q: So you want to shift more responsibility from financial regulators to management and auditing firms?
A: CEO and auditor certification puts the duty on the people who are supposed to have knowledge and understanding, rather than saying that regulators need to figure out all the permutations. The [fiduciary] duty ought to be on the performers, not on the observers.
Q: Is that why the Administration has barely nudged up the budget for Securities & Exchange Commission enforcement?
A: In Washington, there's this horrible convention that says we measure how much we care about something by how much more money we spend on it. It's just nutso.