Introducing the panel, Chancellor Emeritus Artemis Joukowsky ’55 warned that “the entire notion of capitalist society is at stake, and the world is reading about it every day.” He referred to the recent spate of multibillion-dollar accounting and governance scandals at companies such as WorldCom, Global Crossing, and Enron. “We can’t change that,” Joukowsky said, “but we can change our way of doing business.”
Moderator John Corrigan, a chairman and partner at Adler Pollock and Sheehan PC, asked panelists how corporations could improve their governance in light of the 2002 Sarbanes-Oxley Act, which expands penalties for securities fraud, outlaws retaliation against whistleblowers, and requires CEOs to certify personally the accuracy of financial reports.
Some panelists agreed that greater transparency regarding corporate finances and operating methods is needed. But James Tisch, CEO of Loews Corporation, complained of difficulty recruiting directors since the new regulations have increased liability. “I think we’re creating a system that encourages mediocrity,” he said.
“What we can do is try to induce ethical conduct,” said Joshua Ronen, a professor at New York University’s Stern School of Business. He suggested that part of the problem is that CEOs usually hire their own auditors, which creates an inherent conflict of interest.
“The kind of capitalism this country built,” Khurana said, “rested on an implicit moral contract that people [in power] would meet their obligations. What we’ve seen in recent years is a violation of this contract.” He added that, while American investors usually enjoy taking risks, they are less likely to do so now because they feel they are being cheated and lied to by corporate CEOs and board members.
“If there is a solution,” Khurana told the crowd, “it must include the restoration of that moral contract.”
