Bush talks tough on business

George Bush: Will "vigorously pursue" lawbreakers

US President George W Bush has called for a new era of integrity in corporate America, ushering in a series of reforms which he hopes will restore confidence in business.

"America's greatest economic need is higher ethical standards," Mr Bush said in a speech to more than a thousand business leaders on Wall Street.

The President called for longer prison sentences for corporate fraudsters and announced the creation of a new taskforce - headed by deputy attorney general Larry Thompson - to pursue and prosecute corporate criminals.

The speech - which follows a string of scandals in American business - is seen as one of the most difficult domestic policy speeches of his presidency.

The Bush administration has been a close friend and ally of corporate America, but big business is now under unprecedented scrutiny.

'Heady profits'

Investor confidence and public trust has been shaken by recent accounting scandals involving companies including Enron, WorldCom and Merck.

What the President wants

Longer sentences for corporate fraudsters

New corporate fraud taskforce

More money for SEC watchdog

Pay packages for bosses explained in plain English

More independent directors for firms

Stock option plans need shareholder approval

Special payments to bosses under investigation to be frozen

Compensation committee to stop 'improper loans' to CEOs

Tougher laws against document shredding

Many of these companies soared to prominence during the telecoms and internet boom of recent years.

"The lure of heady profits of the late 1990s [led to] abuses and excesses. We must usher in a new era of integrity of corporate America," the President said.

Mr Bush stressed the strong performance of the American economy, but said that "while nearly every week brings economic news", it also "brings a discovery of fraud and scandal".

He said: "The business pages of American newspapers should not read like a scandal sheet."

The President stressed the need for greater transparency of accounts as well as greater vigilance.

If we actually saw these guys go to prison...that would do something

Bev Hendry
Phoenix Aberdeen

Pointing to the strong performance of the American economy, he added however that "there is no capitalism without confidence, no wealth without character".

Reform call

Mr Bush called for an extra $100m (£64.7m) to strengthen the SEC, helping it to hire enforcement officers and bolster its technology.

He called for executives to be jailed if they deliberately falsified accounts - at the moment they face only civil penalties. Prison sentences should be doubled to ten years.

The SEC should also have the power to freeze "improper payments to corporate executives" when a company is under investigation.

And chief executives should explain their compensation packages in 'clear English'.

The President called for stronger laws against shredding documents and other forms of obstructing justice. Arthur Andersen - the accountant to Enron and WorldCom's accountant - was convicted on 15 June of obstructing justice.

Mr Bush has called on corporate compensation committees to prevent executives from receiving loans from their companies. WorldCom made loans of more than $400m to its former chief executive Bernie Ebbers.

The president added that stock markets should require that a majority of the company's directors, as well as members of the compensation committee, be 'truly independent'.

Will it work?

Scepticism however remains.

With the exception of the taskforce, Mr Bush's other calls for reform require co-operation from lawmakers, regulators, stock markets as well as business itself.

"So far the administration's approach has been a familiar strategy. Use harsh rhetoric to condemn wrongdoers while delaying and watering down whatever reforms might come out of Congress," said House of Representatives Democratic leader Richard Gephardt of Missouri.

"If we actually saw some guys go to prison for these scandals that would do something," said Bev Hendry, portfolio manager at Phoenix-Aberdeen.

"We need more action, less talk. These things would take a long long time to be enacted."

Bernie Ebbers refused to testify to the congressional committee

The collapse of energy giant Enron last December - the biggest company bankruptcy in US corporate history - was blamed on complex financial arrangements and questionable accounting practices.

Since then, investor confidence has been further shaken by a series of revelations involving suspect accounting, culminating in a $3.8bn fraud at telecoms firm WorldCom - now being investigated by a congressional committee.

Two former WorldCom bosses, Bernie Ebbers and Scott Sullivan, on Monday refused to give evidence to the committee, using their constitutional right to avoid self-incrimination.

A separate investigation is being held into accounting practices at Halliburton, the energy company that Vice-President Dick Cheney used to run.