But before we knight the bureaucrats for whipping corporate America back into shape, let's credit some other change agents. Fannie Mae CEO Franklin Raines quit largely because The Wall Street Journal and other media outlets had exposed the housing lender's financial house of cards. Boeing chief Harry Stonecipher, who stepped down this month after his extramarital affair with a colleague came to light, wasn't a casualty of an external governance initiative but of the code of conduct Stonecipher himself had established at the aerospace giant. Carly Fiorina was pushed out at HP because the company wasn't making its numbers and because employees and directors had lost confidence in her leadership. Self-interest is still a powerful motivator.
There's a right way and a wrong way for outsiders to police corporate America. The right way is to prosecute executives who cheat shareholders and employees. The conviction this month of former WorldCom chief Bernie Ebbers for his part in the largest financial fraud in U.S. history sends the clear message that even affable white-collar criminals will do hard time.
The wrong way is to play for the headlines. Do a Google search on "Enron-like accounting," for instance, and up come thousands of references to everything from Haliburton to Social Security reform to the FCC's handling of TV-program indecency complaints--all by sound-bite aficionados who have zero understanding of the financial fraud that really went on at Enron. New York Attorney General Eliot Spitzer has rightly put Wall Street on notice that its merchant banking and client-advisory practices present a conflict of interest, but instead of marshaling genuine reform, his office has extracted fines from the biggest firms without requiring them to admit wrongdoing, limiting the chances for cheated investors to recover damages.
Sarbanes-Oxley, HIPAA and other such regulations are only as good as the cultural changes they compel. Compliance for the sake of compliance can be counterproductive. Take SOX, widely considered the most important piece of U.S. legislation affecting corporate governance and financial disclosure in 70 years. To cover their butts, companies are keeping records of everything, storing vast amounts of information without giving much thought to what they're storing or why. As a result, it's even more difficult than before for auditors to weed out suspicious financial activity.