ACCOUNTABLE EXECUTIVES

The standard defense for those seven, even eight-figure CEO salaries has always been that these individuals deserve such robust compensation in return for their all-encompassing knowledge of the business at hand. This defense took a sharp blow late last month with the appearance by former Enron CEO Jeffrey Skilling before a Senate committee. Mr. Skilling knew nothing on so many matters it is a miracle he knew the name of the company he steered into the biggest bankruptcy in history.

President Bush’s first round of proposals to restore public confidence in corporations, and in the stock market that drives our economy, should prevent such absurd spectacles in the future. Holding CEOs personally responsible for their companies’ financial statements, quarterly as well as annual, and forcing them to forfeit salaries and bonusus should should statements be false or misleading, should cause these execs to sit up and pay closer attention during staff meetings.

The president’s plan also bars accounting firms from engaging in both accounting and consulting for the same client, the kind of double-dipping that turned Arthur Andersen from Enron watchdog to cheerleader.There also would be tighter, more explicit rules regarding disclosure of stock trades by executives and board members.

Democrats promptly responded to Mr. Bush’s plan with the criticism that the measures don’t go far enough and lack sufficient enforcement muscle. They are right. But the plan is, after all, a starting point and holding CEOs personally responsible is a good place to start. From there, jail time for knowingly participating in shareholder deception or for egregious negligence is but a small additional step.

The plan does not address the equally important issue of holding boards of directors more accountable. The Enron debacle was made possible in large degree by directors who looked the other way, who permitted blatant violations of company policy and who put their own perks and interests above all else. The president’s advisors on this reform plan, including Federal Reserve Chairman Alan Greenspan, recommended making directors vulnerable to fraud lawsuits, but that did not make the first cut. Shareholders need this strong protection and Congress should see that they get it.

What happened at Enron was not, Mr. Skilling’s sorry excuses notwithstanding, a matter of a company becoming too complex for any one individual to understand. The complexity was created expressly to hide fraud and deception. Despite the plan’s shortcomings, the president deserves praise for understanding the difference.