As painful as the bear market in stocks has been, the resulting political backlash could cause more long-term economic damage than the sell-off itself, the top officer of Nasdaq Stock Market Inc. told members of Baltimore's business community yesterday.
"Someone needs to speak up and tell [these reformers] to look before you leap," Hardwick "Wick" Simmons, the Nasdaq's chairman and chief executive officer, told 550 people at the Greater Baltimore Alliance's FutureQuest 2003 meeting at the Hyatt Regency Inner Harbor.
The proposed market reforms "could have broad commercial implications if they are not thoroughly thought through. ... I hope we can turn the tide."
About 3,800 companies - including many technology firms - are traded on the Nasdaq, the world's largest electronic stock market.
When Simmons left Prudential Securities Inc. to become the Nasdaq's new CEO on Feb. 1, 2001, the Nasdaq composite index stood at 2782.79 and was already well into a swoon that ended up as a rout for investors. It went as low as 1,114.11 on Oct. 9, and closed yesterday at 1,422.44.
During the height of the speculative bubble, the Nasdaq peaked at 5,048.62 on March 10, 2000, as Internet firms with no profits, or even sales, attained market values in the billions. But as the market began falling, investor losses mounted.
Since the end of 2000, on the Nasdaq alone, about $4 trillion in shareholder wealth evaporated, clearly contributing to the economy's downturn, according to Simmons.
"The glory days are over," he said.
But Simmons warned that some proposed reforms that have followed the collapse of companies such as Enron and WorldCom go too far and could set the U.S. financial system back years.
Some would make it harder for businesses to raise money needed for growth, while others would hamper companies' efforts to get the best talent possible, he said.
Simmons specifically mentioned proposals on corporate stock options. Changing accounting rules to require companies to list options as an expense would crimp profits and remove a key recruiting incentive, according to Simmons.
Instead of changing the accounting rules, Simmons said, companies should be forced to allocate options more broadly, allowing employees at lower levels to get them, too. Executives who do get options should be required to hold them longer - perhaps even until retirement, Simmons said.
Fortunately, Simmons said, reformists have been mollified a bit by the recent enactment of the corporate governance reform law that, among other things, limits the length of time outside accountants can work on a company's audit. The law also restricts the types of additional services an auditor can perform for that firm.
Instead of tearing apart - and then attempting to reconfigure - the U.S. system of capitalism, Simmons said, politicians should make only modest changes. The marketplace, he said, will take care of the rest.