But even as the scandals and distrust spread, Washington increasingly seems to be living in a different universe. Rather than moving quickly to restore investor and worker confidence, Congress is stuck. Reform of the accounting profession, better rules for 401(k) plans, changes in the financial treatment of stock options--all are stalled by legislative gridlock and intense corporate lobbying.
That's wrong and dangerous. We have now seen that the steady stream of corruption revelations is undermining the faith of Americans in their financial system. That's important enough to require rapid action.
There's plenty of blame to go around. The White House, preoccupied with the war on terrorism, hasn't done much to champion reform. The President's conservative economic advisers think strong measures could do more harm than good. House Republicans, who don't want sweeping changes either, have passed weak bills that protect them against the charge of inaction while sparing them from actually backing effective reforms. Meanwhile, Senate Democrats, who mostly favor stronger measures, lack the votes to win passage.
Even more damaging is the behavior of business organizations. Rather than acknowledging the need for major change, lobbying groups such as the Chamber of Commerce and the National Association of Manufacturers are putting stiff pressure on legislators and the White House to slow down reforms or to back only weak measures. Silicon Valley companies have thrown their full weight into opposing proposals to force expensing of stock options. And even the industry group representing accountants--not the most esteemed profession these days--has proved potent enough to tie up effective accounting reform.
The latest reform proposal came from the New York Stock Exchange on June 6. The NYSE is proposing a variety of new regulations for the companies listed on the stock exchange, among them the requirement that a majority of board members be independent of the company and that a shareholder vote be held on all stock option grants. Facing opposition from big companies, it's not clear whether the proposal will get the necessary approvals from the SEC and the board of directors of the NYSE.
Before the damage of widespread distrust becomes irreparable, executives have to step up and show leadership by supporting necessary reform. That's the best way to maintain the strength of the U.S. economy and financial system--and restore trust in business.