Published on Sunday, May 4, 2003 by Reuters
Critics Want More Corporate Remorse
by Chris Sanders
NEW YORK - When it comes to showing remorse for past misdeeds, critics say corporate America just doesn't get it.
Whether it is allegations of biased research on Wall Street firms or rich pay packages for executives at corporations in financial trouble, many U.S. companies are on the defensive.
Critics say corporate America has not learned its lessons, and that many top executives are still acting as if it were business as usual.
"The most charitable way to look at these things is as examples of having a tin ear," said Henry Hu, corporate and securities law professor at the University of Texas. "But I worry that these senior executives really haven't come to terms with the fact that there were some real fundamental problems."
After Wall Street brokerages reached a $1.4 billion settlement with regulators this week, the head of investment bank Morgan Stanley made public comments denying the pact raised any concerns for retail investors.
The remarks from Morgan Stanley CEO Philip Purcell drew a rebuke from SEC Chairman William Donaldson, who warned Purcell that his words reflected a "troubling lack of contrition."
"It seems there just isn't a grasp of the gravity of what's going on," a regulator at the Securities and Exchange Commission, who asked not to be named, told Reuters.
Wall Street executives are not alone in drawing criticism. Some high-powered executives are either overcome by hubris, greed or perhaps ignorance about the extent of investor anger, critics say.
American Airlines, a division of AMR Corp., ousted Chief Executive Don Carty in April after an employee rebellion over his failure to disclose a multimillion dollar pay package for senior executives approved while the airline fought off bankruptcy. The largest U.S. airline had been also begging unions to approve huge pay cuts as it tried to slash costs.
John Bogle, founder of the Vanguard Group mutual fund giant, said Carty's actions reflect the "I" society.
"The moral standard is that if everyone else is doing it, and getting it, then I can get it too," Bogle said.
WALL STREET SETTLEMENT
Critics say executives involved in the Wall Street settlement, such as Purcell, need to watch their public statements more carefully.
"It would be hard to stare a $1.4 billion settlement in the face and not, at least, appreciate the problem," said Donald Langevoort, professor of law at Georgetown University.
Shareholder activist Herbert Denton, president of investment firm Providence Capital Inc. in New York, said, "Perhaps it was hubris. It's the only way you can look at it."
Purcell isn't the only Wall Street executive to come under fire for remarks questioning the settlement. Recently, Merrill Lynch & Co Inc. Chief Executive Stan O'Neal wrote in an op-ed piece in The Wall Street Journal that the settlement was an effort to eliminate risk from the marketplace and that "if we attempt to eliminate risk -- to legislate, regulate or litigate it out of existence -- the ultimate result will be economic stagnation."
O'Neal's article was scorned by New York Attorney General Eliot Spitzer, whose investigations, along with those of federal regulators, led to the settlement.
Without naming O'Neal, Spitzer told a press conference; "So, Mr. CEO, and I read your article carefully, if I were you I would reflect. What your company did, and what we have alleged about your company, is that you committed fraud."
Spitzer on Friday signaled that criminal charges against individuals could be on the way. "Just wait," Spitzer said in an online forum held on the Washington Post's Web site. "The criminal actions may come in the future and the number of prosecutors around the nation who are looking at possible prosecutions is significant."
Critics also accuse New York Stock Exchange Chairman Richard Grasso of bad judgment for attempting to put Citigroup chief executive Sandy Weill on the exchange's board at the same time Citigroup was being investigated in Spitzer's research probe.
Some boards of directors, possibly recognizing the dangers of old practices, have been reining in their executives.
"Boards are much more sensitive to it now than in the past," Denton said. "They have learned that if they don't change, they will pay with their heads."
But Lawrence White, an economics professor at New York University, said little has changed other than "greater lip service" to reform. "I fear this may not last because I don't see a lot of structural changes," he said.
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