Former SEC Chairman discusses corporate responsiblity, practices

Two Williams alums who have found prominence in corporate America returned to the Brooks-Rogers Recital Hall last Friday in order to take part in a Convocation panel to discuss “’Take on the Street’ Crisis and Renewal in American Business.”

Bethany McLean ’92, Arthur Levitt, Jr. ’52 and Robert Jackall, Gaudino Scholar and Class of 1956 Professor of Sociology and Social Thought, comprised the panel, which addressed the recent trends in corporate scandal and unethical business practices on Wall Street.

McLean, senior writer at Fortune, was at the forefront of exposing the Enron debacle when she asked “Is Enron Overpriced?” and questioned the company’s business practices in the March 6, 2001 issue of Fortune. She is currently authoring a book about the Enron scandal which she hopes will be in stores next year. While at Williams, she pursued a double major in Math and English.

Levitt, former chairman of the Securities and Exchange Commission, was awarded an honorary Doctor of Law degree by the College in 1980. After graduating from Williams with a degree in English, he worked as a reporter for The Berkshire Eagle and then served in the Air Force. He later worked for Life Magazine and Time before leaving publishing for the cattle business. After his cattle career, Levitt was president of the New York brokerage firm Shearson Hayden Stone. He then became the 25th chairman of the Securities and Exchange Commission in 1993 and held that post until 2000. He has also served as trustee for the College for the past 15 years. His book, on which the panel was based, is entitled Take on the Street: the Ultimate Insider Reveals the Hidden Costs and Dangers of Investing on Wall Street and will be published in October.

Jackall, who moderated the discussion, set the tone for the panel with his opening remarks, stating, “the business of America is business” and held responsible abuses such as the “take money and run” mentality of CEOs as main causes of the country’s current economic woes.

Following Jackall’s opening remarks, McLean briefly explained why she began to question the seemingly golden Enron in the first place. At a friend’s urging, McLean analyzed Enron’s financial reports and discovered that the company was earning a low return, accumulating more and more debt, and producing no cash. Regardless, Enron’s stock was trading at $80 per share and then-CEO Jeff Skilling was boasting that it should be selling at $126 per share. When McLean questioned Skilling about this disparity, he lost his temper and accused her of not understanding Enron’s situation.

“If you do not understand something,” McLean advised the audience, “say you do not understand because either you are missing something obvious or you are not supposed to understand.”

The next week, McLean published her fateful article asking, “Is Enron Overpriced?”

Levitt responded to McLean’s story by commending the press for its hard-working, aggressive reporting. He went on to describe a two decade long erosion of ethical values in corporate America. Enron, Levitt argued, represented the “abdication of responsibilities by the gatekeepers” such as board members, lawyers and auditors, whose jobs were to ensure fair practices were being conducted. Despite the depth of these corporate abuses, Levitt believed that no further congressional reform was needed since the humiliation and embarrassment suffered by corporate leaders was sufficient to change their behavior. He ended by stating that regardless of the corruption of corporate executives such as Enron’s Kenneth Lay, American business practices are still superior to those elsewhere in the world. After Levitt spoke, the panel fielded several questions from members of the audience.

The first question, put forth by Jackall, asked the panelists to describe how widespread the abuses in corporate America actually were. Levitt responded by stating that there were a great many abuses in corporate America though most were unethical rather than criminal

A member of the audience further asked if an ethical system could withstand capitalism itself. McLean replied by stating that business practices swung from one extreme to another and that “now we’re at one extreme of the pendulum.”

On several instances, Levitt reiterated his belief that business leaders will reassert themselves and reform business practices themselves without the aid of the Securities and Exchange Commission or Congress. He noted three steps necessary in order to heal the crisis on Wall Street. First, he believed that the public must be reassured about accounting standards. Second, he felt that research must be separated from investment banking in order to ensure its objectivity. Third, the issue of executive compensation must be reviewed in order to prevent an abuse of power. Levitt was optimistic that out of this crisis stronger leadership and more ethical business practices would emerge on Wall Street.