Viva Los Regulators
NY TIMES EDITORIAL, April 3, 2005

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We have seen one corporate chieftain after another, the likes of Bernard Ebbers of WorldCom and John Rigas of Adelphia, doing the perp walk recently through the morass of business scandals. Federal regulators are in striking distance of Maurice Greenberg of the American International Group, an icon of American business. And many shareholders of Enron are licking their lips in anticipation of the trials of its former chief executives, Kenneth Lay and Jeffrey Skilling.

So it's no surprise that these high-profile cases have spawned a backlash from Wall Street about overzealous prosecutors and federal regulations that have run amok. Some defenders of business have even gone so far as to suggest the conviction of Mr. Ebbers shows that America does not need the Sarbanes-Oxley law, passed in 2002 as a response to corporate fraud.

This makes no sense. The very fact that corporate chieftains are falling left and right shows that more needs to be done. These cases are symptoms of endemic business corruption, and this is no time to start talking about backtracking.

Interestingly, much of this talk about overzealous enforcement is brought on by the behavior of big business itself, yet another sign that corporate America still does not get it. Instead of self-policing their accounting practices, many companies appear to be focusing on issues of personal behavior by employees that are of little concern to shareholders or the public. This goes beyond the forced resignation of the chief executive of Boeing, Harry Stonecipher, for having a consensual affair with an employee. Early this year, Bank of America, which has paid nearly $1 billion in fines over the last year for various transgressions, fired a highly regarded bond analyst, Andrew Susser, for his stab at humor in a research report on the casino and lodging industry. On its cover, which carried the title "Checking In," Mr. Susser's face was superimposed over the body of a woman in a cocktail party dress and heels who was being carried over the threshold by a man, as reported by Landon Thomas Jr. in The Times. This is sophomoric behavior, certainly, but not grounds for dismissal; at least it was not back in the days before the business sections of newspapers started reading like rap sheets.

Instead of singling out low- and middle-level executives, big business would better spend its time going after the top-tier people for overstating earnings and sliding expenses around. After paying a $300 million fine to settle charges by the Securities and Exchange Commission that it overstated advertising revenue, Time Warner did not dismiss the executives, including the chief financial officer, who approved the accounting.

What this shows is not that law enforcement is overzealous, but that upholding the public interest is still too much at the whim of individual officials. The decision by the New York attorney general, Eliot Spitzer, to take on the finance industry was a good thing, but the public should not have to depend on one individual's deciding to take up such a cause.

Still, as long as we are in this pattern, it is a good sign that some of these eager officials are turning their attention from shareholder protection to consumer protection. Minnesota's attorney general recently sued two subsidiaries of the Capital One Financial Corporation, alleging that their supposed "low" and "fixed" interest rates on credit cards are actually neither. The suit alleges that for many consumers, the rates went up - as high as 25.9 percent - if they were just a day late in paying their bills.

That kind of action is what the American middle class - on whose shoulders rests so much of the world economy - needs.

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