Many of the reforms Bush proposed Tuesday in a Wall Street speech are irrelevant to today's corporate crime wave, professionals said, and others already are in place. Some even appear to be less exacting than existing regulations.
"There was not only nothing on the bones, there was nothing at all," said Democratic New York Atty. Gen. Eliot Spitzer, who has waged a highly public battle against securities analysts for their alleged conflicts of interest. Spitzer's recent $100 million settlement with Merrill Lynch & Co. over charges that its analysts issued tainted opinions has led that firm and others to revise their standards for analysts.
Bush referred to the controversy over analysts by pledging to "aggressively enforce" existing Securities and Exchange Commission rules barring conflicts of interest. But he offered no new proposals to address the problem.
Some of Bush's proposals addressed issues that aren't noticeably relevant to the current run of corporate malfeasance. He proposed legislation barring executives convicted of "abusing their powers" from ever serving as corporate officers or directors, for example. The SEC, however, already has the legal power to permanently bar any individual from serving with public companies. None of the leaders of the recent parade of companies accused of misleading investors -- including Enron Corp., WorldCom Inc., Global Crossing Ltd., Xerox Corp. and Adelphia Communications Corp. -- has a criminal record.
On the whole, critics faulted Bush for failing to address a core problem in corporate accounting, which has led to many of the recent abuses: executives who continue to face powerful incentives -- enhancing their compensation -- to dress up their companies' quarterly financial results.
"As far as I was concerned, it really was as anemic as it could possibly be," said Lawrence E. Mitchell, a law professor at George Washington University and author of the 2001 book "Corporate Irresponsibility." "Because those reforms ... don't address the root problems that even [Bush] seems to recognize, the reforms are meaningless."
In the speech, given before the Association for a Better New York, Bush argued for higher ethical standards for America's business leaders and voiced strong support for shareholder rights, including representation by truly independent boards of directors. But he failed to generate enthusiasm among investors Tuesday -- the Dow Jones industrial average dropped 178.81 points, although several corporate earnings reports also appeared to depress stocks.
Bush did criticize what he called excessive and unrealistic executive pay. He proposed that every chief executive disclose the details of his or her pay package in annual reports and "explain why his or her compensation package is in the best interest of the company he serves."
But current rules require disclosure of the pay packages of the top five corporate officers -- not only the CEO -- in a public company's annual proxy statement, which is filed publicly and mailed to every shareholder.
And compensation experts said the most important cause of the explosion in executive pay in recent years is the expanding use of stock options, which Bush did not specifically address. The value of options tended to rise exponentially during the bull market of the 1990s, when their prevalence in pay plans encouraged executives to manage with an eye toward boosting short-term share prices rather than enhancing the long-term or intrinsic values of their companies.
"The massive increase in executive stock options creates enormous temptation for fraud," said Jennifer Arlen, a New York University law professor specializing in securities fraud and corporate governance. "Bush made no mention of this even though everyone familiar with corporate governance knows this is a huge issue."
Bush failed to mention a reform widely supported by shareholder activists [and vigorously opposed by corporate executives] that would require companies to account for the cost of executive options on their income statements, thus exacting a real price for excessive option awards.
"Charging earnings for the cost of stock options is the hydrogen bomb in terms of lowering executive pay," said Graef Crystal, a leading executive compensation expert. Crystal said that under current accounting rules, a company can issue any quantity of options to executives without reflecting the cost on its books until the options are exercised, generally years in the future.
Securities fraud experts also picked apart Bush's proposal to double the maximum prison term for mail or wire fraud to 10 years. The top penalty for securities fraud, the main charge normally brought in accounting-related cases, already is 10 years, experts said. Mail and wire fraud often are ancillary charges brought alongside securities fraud.
The shorter maximum sentences rarely pose an obstacle to determined prosecutors; those seeking longer sentences for mail or wire fraud simply charge defendants with multiple counts.
Current and former regulators said that longer prison sentences won't deter any wrongdoing until CEOs believe that their actions will be detected and aggressively prosecuted.
Other criminal experts said white-collar defendants customarily have evaded even the minimum five-year sentence. Savings and loan executives convicted of fraud in the early 1990s were sentenced to an average of just more than three years in federal prisons, said Henry Pontell, a criminologist at UC Irvine.
By comparison, convicted burglars were sentenced to an average 55.6 months during the same period and first-time drug offenders got 64.9 months.
"There are too many ways for [white-collar criminals] to escape the ultimate sanction," Pontell said. "As long as they know they have a greater likelihood of escaping detection, hiding behind layers of corporate responsibility, and that they will have a fleet of high-priced lawyers at their side, increasing sanctions could have little effect on their behavior."
Some of the executives who presided over the most spectacular corporate debacles of recent months maintain that they worked within the law.
"To this day Kenneth Lay [former Enron CEO] doesn't believe he did anything wrong," said Michael J. Connell, a former associate director of the SEC's division of corporate finance. "That's very much the prevailing attitude" in corporate boardrooms, said Connell, who is in private practice in Los Angeles with Morrison & Foerster.
Some corporate experts said the only way to stem the outbreak of executive abuse may be to revise the corporate regulatory system as decisively as was done after the market crash of 1929, when the SEC was established.
"The problem is easily summed up," Connell said. "The system of financial reporting was put in place before the PC became widely accessible, and it's out of date. There's too long a time lag between when management knows what's going on and when they have to tell other people. The incentive is for them to manipulate the numbers, because their compensation and prestige depend on it. The system doesn't require information to flow into the marketplace in a timely fashion."
Public corporations are required to report their unaudited revenues and profits every quarter and to issue fully audited accounts once a year.
But the largest companies, such as the Fortune 500, Connell said, theoretically are able to issue some material figures as often as once a day -- a rate more commensurate with the flow of trading information in today's computer-dependent markets.
Connell acknowledged that no one in Washington has proposed such a radical reconsideration of reporting standards.
"But we need a whole new set of standards designed to get financial information into the marketplace quicker," he said.