30 March 2005

Corporate Accountability: The New Era of Governance

“No more easy money for corporate criminals -- just hard time.”

George W. Bush signed the Sarbanes-Oxley Act of 2002, the most far-reaching corporate reform legislation since the New Deal in the 30's. The legislation is the result of billion-dollar corporate accounting scandals like Enron, Tyco, and WorldCom, and is designed to send a message to employees that the American public will no longer tolerate corruption in the companies they invest in. Welcome to the new era of corporate governance, where the stakes for wrongdoers has been raised dramatically.

Now with AIG and Warren Buffet under the latest round of questioning, it's further proof we are in a new era of governance.

Spitzer's office and the Securities and Exchange Commission are investigating the questionable use of a product known as finite reinsurance that can be used to make a company appear stronger financially than it really is. The focus of the investigation is a transaction in late 2000 between General Re, a Berkshire affiliate, and AIG, the world's leading insurance company.

Regulators say that the transaction artificially increased AIG's premium reserves, ultimately helping its stock price and its ability to acquire another company.

As Maurice Greenberg, the former CEO of AIG sits and waits for the story to unfold, he must be asking himself how did this happen? In the "New Era of Corporate Governance" the question should be, why did it take so long for it to happen? As stockholders are paying the price of corporate incivility it becomes clear that the real heros in all of this are those in Eliot Spitzer's office.

Without the continuous oversight of our regulators and the people who represent the common stock holder to enforce the law, we will not achieve what we all seek in any business relationship. The truth.

Sarbanes-Oxley and the other laws being chastised by some business executives as over protective and unjust in the quest to reach compliance will eventually achieve their goal. We are almost at the "Breakpoint" in the bottom of the "S" curve where this corporate biologic system will begin to rise and grow again. Where companies investments in education, technology and processes will turn them towards greater investor confidence and therefore greater levels of investment.

The "New Era of Governance" is just around the corner and the companies who continue to see that the investment will eventually pay off will be the real winners.

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