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Analysis: Critics say the president's plan fails to address core issues. His proposals are labeled nonspecific, irrelevant and redundant.


President Bush's corporate reform initiatives will do little to restore confidence in America's battered business culture, whether by shoring up investor trust or discouraging genuinely fraudulent behavior in the executive suite, according to business experts and government regulators.

Many of the reforms Bush proposed Tuesday in a Wall Street speech are irrelevant to today's corporate crime wave, professionals said, and others already are in place. Some even appear to be less exacting than existing regulations.

While Bush deplored several developments undermining public confidence in the securities markets, he proposed only a few specific solutions. As a result, rather than seizing the high ground in the burgeoning furor over corporate misbehavior, the president may have given ammunition to critics who question his commitment to correcting abuses.

"There was not only nothing on the bones, there was nothing at all," said Democratic New York Atty. Gen. Eliot Spitzer, who has waged a highly public battle against securities analysts for their alleged conflicts of interest. Spitzer's recent $100-million settlement with Merrill Lynch & Co. over charges that its analysts issued tainted opinions has led that firm and others to revise their standards for analysts.

Bush referred to the controversy over analysts by pledging to "aggressively enforce" existing Securities and Exchange Commission rules barring conflicts of interest. But he offered no new proposals to address the problem.

Some of Bush's proposals addressed issues that aren't noticeably relevant to the current run of corporate malfeasance. He proposed legislation barring executives convicted of "abusing their powers" from ever serving as corporate officers or directors, for example. The SEC, however, already has the legal power to permanently bar any individual from serving with public companies. None of the leaders of the recent parade of companies accused of misleading investors--including Enron Corp., WorldCom Inc., Global Crossing Ltd., Xerox Corp. and Adelphia Communications Corp.--has a criminal record.

On the whole critics faulted Bush for failing to address a core problem in corporate accounting, which has led to many of the recent abuses: executives who continue to face powerful incentives--enhancing their compensation--to dress up their companies' quarterly financial results.

"As far as I was concerned, it really was as anemic as it could possibly be," said Lawrence E. Mitchell, a law professor at George Washington University and author of the 2001 book "Corporate Irresponsibility." "Because those reforms ... don't address the root problems that even [Bush] seems to recognize, the reforms are meaningless."

In the speech, given before the Assn. for a Better New York, Bush argued for higher ethical standards for America's business leaders and voiced strong support for shareholder rights, including representation by truly independent boards of directors. But he failed to generate enthusiasm among investors Tuesday--the Dow Jones industrial average dropped 178.81 points, although several corporate earnings reports also appeared to depress stocks.

Bush did criticize what he called excessive and unrealistic executive pay. He proposed that every chief executive disclose the details of his or her pay package in annual reports and "explain why his or her compensation package is in the best interest of the company he serves."

But current rules require disclosure of the pay packages of the top five corporate officers--not only the CEO--in a public company's annual proxy statement, which is filed publicly and mailed to every shareholder.

And compensation experts said the most important cause of the explosion in executive pay in recent years is the expanding use of stock options, which Bush did not specifically address. The value of options tended to rise exponentially during the bull market of the 1990s, when their prevalence in pay plans encouraged executives to manage with an eye toward boosting short-term share prices rather than enhancing the long-term or intrinsic values of their companies.

"The massive increase in executive stock options creates enormous temptation for fraud," said Jennifer Arlen, a New York University law professor specializing in securities fraud and corporate governance. "Bush made no mention of this even though everyone familiar with corporate governance knows this is a huge issue."

Bush failed to mention a reform widely supported by shareholder activists (and vigorously opposed by corporate executives) that would require companies to account for the cost of executive options on their income statements, thus exacting a real price for excessive option awards.

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