[Congressional Record Volume 148, Number 97 (Wednesday, July 17, 2002)]
[Senate]
[Page S6944]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ADDITIONAL STATEMENTS

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            AN ESSAY BY SANFORD WEILL ON ACCOUNTING REFORMS

 Mr. HOLLINGS. Mr. President, I want to share with my 
colleagues an excellent essay by the best of the best, Sandy Weill. As 
the article points out, most corporate executives, like Sandy Weill, 
are honest and already enacting changes in their companies to provide 
better accounting disclosure policies.
  As the message comes from someone who has distinguished himself as a 
business leader, it is a message I hope all American business 
executives not only hear, but heed.
  I ask to print the essay in the Record.
  The essay follows:

                      Core Values Start at the Top

       America has long had a financial system to be proud of and 
     it is therefore critical--particularly at a time of danger 
     and uncertainty--that both industry and government enact 
     changes to address the recent corporate scandals that have 
     shaken faith in the system and its corporate executives.
       The country will come through this period stronger than 
     ever, but only with the hard work of legislators, regulators 
     and, most important chief executive officers. George W. 
     Bush's call for a new ethic of corporate responsibility comes 
     at the right time, with its emphasis on holding corporate 
     officers more accountable, protecting small investors, moving 
     accounting out of the shadows and providing better disclosure 
     along with a stronger and more independent corporate audit 
     system.
       The president's proposal that corporate officers lose 
     compensation they may receive by manipulating their 
     accounting statements, and efforts by Harvey Pitt, chairman 
     of the Securities and Exchange Commission, to make CEOs more 
     individually accountable for their companies' financial 
     disclosures should be welcomed.
       Used correctly, option grants should not only reward good 
     performance but encourage a long-term perspective. Many 
     companies use them for this purpose: more should. I have long 
     been a proponent of ``buy-and-hold'' investing, and at 
     Citigroup, our senior managers and board abide by a rigorous 
     stock ownership commitment. Every one of us makes a pledge--a 
     ``blood oath''--to hold three-quarters of any stock or 
     options we receive as long as we remain with the company, 
     which reinforces our consistent focus on the long term. Also, 
     we have never repriced stock options for our senior 
     executives, and we never will. When companies do this, an 
     alarm should sound that the long-term alignment of 
     shareholde and management interests is not in place.
       To ensure that everyone in a company is focused on 
     appropriate long-term objectives, stock ownership should go 
     as deep as possible within an organization. To encourage 
     this, and to respond to concerns regarding excess 
     compensation, I suggest that options be expended for the top 
     five officers identified in the proxy, and that tax treatment 
     be enhanced for options given to the rank and file earning 
     less than $100,000 by allowing options to be included in 
     401(k) pension plans. Proposals to change the accounting or 
     tax treatment of stock options should not hinder these 
     programs--they should encourage other companies to adopt 
     them.
       In the wake of recent scandals, all CEOs should examine 
     their governance principles. They must push for strong, 
     independent boards and focus on full disclosure. Bullet-proof 
     audit processes, with exhaustive internal and external checks 
     and balances must be in place, reporting to an independent 
     committee of the board whose involvement goes beyond 
     quarterly meetings.
       Audit partners should be rotated regularly and outside 
     auditors should be used for audit and tax purposes only. 
     Companies must also get back to basic accounting, based on 
     Generally Accepted Accounting Principles, and be required to 
     account for all revenues and expenses rather than producing 
     pro forma or ebitda as their primary income measure.
       One of the most distressing fall-outs of the current crisis 
     is the public's reduced confidence in audited financial 
     statements, for decades the very underpinning of America's 
     financial system. We cannot make auditors out of lawyers, 
     boards, rating agencies, research analysts or bankers. We 
     need auditors to do their jobs and be accountable to one 
     group alone: the shareholders.
       I therefore applaud efforts by Senator Paul Sarbanes, 
     Congressman Michael Oxley and the US Congressional leadership 
     towards comprehensive accounting reform legislation. Just as 
     concern over corporate disclosure during the Great Depression 
     led to the creation of the SEC, a strong independent 
     authority must be established to set accounting standards and 
     oversee auditor conduct. In effect, we need an SEC for the 
     accounting industry.
       Eliot Spitzer, New York's attorney-general, has identified 
     serious issues in the way investment banks and research 
     analysts interact. Citigroup's Salomon Smith Barney was the 
     first to adopt voluntarily the research reforms put forward 
     by Mr. Spitzer. These, along with proposals from the SEC and 
     the New York Stock Exchange, are setting higher standards for 
     the industry.
       Even so, we must do more. I believe the entire industry 
     should be subject to additional rules that make research 
     independent from investment banking. Analysts should be 
     barred from attending any meeting with investment bankers 
     soliciting business from public companies and from 
     participating in any ``roadshow'' presentation to investors. 
     Investment bankers should be barred from having any input in 
     determining the compensation of research analysts and from 
     previewing any research reports prior to publication.
       The current crisis is an opportunity to recapture core 
     values. But this will only be possible if CEOs accept the 
     responsibility that comes with their rank. It is up to use to 
     lead the way.

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