In the wake of corporate scandals such as Enron and WorldCom, the role of corporate directors as promoters of investors' confidence and proponents of investors' interests is more important than ever before, Harvey Pitt, chair of the Securities and Exchange Commission, said in a speech at the Washington Duke Inn Tuesday.
The keynote address on the second night of The Directors' Education Institute, sponsored by the Global Capital Markets Center, addressed the issues of market integrity, investor confidence and government reforms in response to recent economic events.
"By now, we're all painfully familiar with the spate of high-profile corporate failures," Pitt said. "We must reassure investors that such abuses of the system are not, and will not be allowed to become the norm in American business."
Pitt outlined three ways to achieve this goal. First, he noted the need for legislative action such as the recently signed Sarbanes-Oxley Act, which implements new legal standards for corporations.
He also emphasized the need for government involvement in regulation and enforcement and, finally, urged the individuals involved in the corporate system to strive for the highest standard of professionalism.
"This institute, an initiative I strongly applaud, falls in the third category," Pitt said.
The first half of the speech focused on the need for increased individual responsibility, personal ethics and professionalism.
"Corporate directors represent the shareholders of public companies," Pitt explained. "Public investors put their faith in you. Without honest, wise and experienced directors, public investors would not trust their funds to the managers."
Pitt pointed to the example of Wendy's founder Dave Thomas, who established the R. David Thomas Executive Conference Center at Duke. He said directors should approach their jobs, "as Mr. Thomas did, with the attitude of not cutting corners, of working hard, of staying humble, of taking nothing for granted and of seizing opportunities."
Pitt addressed the ways in which the SEC and Congress are working to reform the system.
"Last fall [the SEC] launched the most aggressive reform agenda in our history," he said. "We embarked on long-needed disclosure reforms to improve the quality and increase the timeliness of disclosure."
Pitt also talked of the three primary principles of President George W. Bush's new "Ten-Point Plan" for reform: accurate and accessible information, management accountability and auditor independence. He discussed the provisions of the Sarbanes-Oxley Act and cited statistics on the improvement of the Enforcement Division since 2000.
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Between the 2000 and 2002 fiscal years, the number of actions for financial reporting and issuer disclosure violations increased 58 percent, the number of unfit officers removed from corporate office increased by 232 percent and the number of temporary restraining orders filed against corporate violators increased 45 percent.
During a question and answer session, Pitt discussed the newly created Accounting Oversights Board, whose members he will announce next week.
"It is the central obligation of the SEC as a result of the Sarbanes-Oxley Act," Pitt said. Although the first six months will likely be devoted primarily to organizational tasks, Pitt spoke highly of the board. "In time it will be a board everyone in Washington can be proud of."