After 34 years on Wall Street, Leo O'Neill said the past two have been by far the most interesting he has seen in his experience with the financial world.
O'Neill, president of Standard and Poor's, a leading ratings service, spoke at a luncheon Tuesday afternoon as part of The Directors' Education Institute--a two-day program developed by the Duke Global Capital Markets Center that seeks to address corporate governance failures in America, especially of diligence, ethics and controls.
"Trust in the integrity of our markets is what separates this country from many others and is the reason our markets recover," O'Neill said, emphasizing the importance of retaining trust in U.S. markets through maintaining integrity.
With other countries looking to the United States as an example of an honest free market, O'Neill said, "our advocacy [for structural reforms in other countries] loses its credibility when we fail to set the example."
Efforts to retain that integrity have contributed to the frenzy of the last two years, as Congress, the New York Stock Exchange and the Business Roundtable, among others, have tried to impose stricter guidelines for businesses in response to the corporate scandals revealed at Enron, Tyco and WorldCom, O'Neill said.
Though NYSE and congressional actions were an important first step, O'Neill said, the "real work" lies in reexamining corporate governance.
"The real risk we run now is a return to complacency about corporate governance... that we delude ourselves into believing that our responsibilities end with compliance to a new set of guidelines and restrictions," he said.
To improve corporate governance, O'Neill said, corporations need to improve communication, both within firms and among companies and investors, by making corporate disclosure practices more transparent.
"While there are certainly limitations as to how much companies can be reasonably expected to disclose... corporations should not view the disclosure process as threatening," he said.
By publishing a "plain English, reader-friendly annual report," firms could eliminate common discrepancies between their annual reports and their regulatory reports. He added that firms that increase openness would show that they have nothing to hide.
Companies could also improve corporate governance by expanding the type of information that they disclose to stakeholders, such as including a company's corporate governance code, its top three shareholders and the process for identifying new directors, to name a few, O'Neill said.
Besides improving corporate governance to maintain integrity, he added, the Wall Street community needs to adjust to the increasing complexity, diversity and globalization of major corporations and financial institutions though more training and education.
Audience members asked O'Neill who he thought should pay for independent analysis of firms, after he said Wall Street should change from sell-side to independent research.
Although funding research may be a challenge for "the Street," O'Neill replied, "it's one they're going to have to get over." He suggested that Wall Street set up a consortium, funded by capital contributions, to conduct independent analysis.
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