WASHINGTON - Enron's collapse has eroded public confidence in the market, and companies that seek financing will pay premiums to restore that trust, former Securities and Exchange Commission Chairman Arthur Levitt said yesterday.
While investigators looking into Enron's bankruptcy are focused on accounting schemes that shifted millions of dollars in debt off the balance sheet, accounting is just part of wider failure involving the legal profession, securities analysts, investment banking and the practices of corporate boards, he told reporters.
Levitt, a Clinton appointee, recommended a number of new measures to restore market confidence and remedy "a vast cultural erosion cutting across every traditional gatekeeper that operates in this arena."
Among the measures suggested by Levitt:
The accounting industry needs an oversight board with the power to subpoena documents to address problems such as those at Enron.
The audit committees of corporate boards need broader powers to enforce a 2-year-old SEC rule that says the committee, not the company, should select the auditor.
Congress should consider legislation to put teeth in this rule, he said.
"Evidence of a seduced board and audit committee is in my experience very, very broad," Levitt said.
"Overall board oversight is deficient in a lot of companies."
The legal profession needs to rescind an American Bar Association restriction on revealing financial fraud when it is discovered.
Conflicts of interest among securities analysts and the investment banks they work for need to be examined.
"I'm not sure whether analysts should be allowed to report on companies being underwritten by their employers," Levitt said.
In another development yesterday, the U.S. Labor Department arranged for control of Enron retirement plans to be transferred from company executives to an independent expert appointed by the department.
Enron will have to pay up to a maximum $1.5 million a year plus expenses, such as accounting services, for the expert, who will "aggressively protect workers' interests during corporate bankruptcy proceedings and maximize the likelihood of recovering funds for the plans," said Labor Secretary Elaine L. Chao.
"Enron's employees should be confident that their interests will be protected by a fiduciary who is unrelated to Enron," she said.
Because Enron is in bankruptcy, the arrangement might require the approval of a bankruptcy judge.