New York (May 12, 2003) -- With crackdowns on accounting and investment banking already well underway, the Securities and Exchange Commission is turning its attention to public companies' boards of directors, SEC Chairman William Donaldson told a group of leading business and finance executives Thursday night.

"It's time to move the discussion to a fundamental review of corporate governance," Donaldson said at a meeting of the Economic Club of New York. "As we move along with Sarbanes-Oxley, it's important that corporate boards move beyond the letter of the law to look at the spirit of the law."

The new SEC chairman's comments came a week after the SEC laid out plans for a $1.4 billion settlement with 10 Wall Street firms accused of issuing tainted stock research to investors, and almost a year after the enactment of the federal Sarbanes-Oxley law that regulates the auditing of public companies.

Donaldson said corporate America should be reminded that "the job of boards is to provide strategic direction and oversight." That, he said, includes scrutinizing companies' growth plans to avoid cycles of big expansion followed by severe retraction, and greater oversight of executives' salaries. He noted that in the early 1980s top executives were typically receiving salaries that were 40 times greater than other workers in the same company, while today's difference is 400 times.

Donaldson offered hope when asked whether there would be a review of Sarbanes-Oxley regulations that are "counter productive," in their cost-to-benefits ratio to smaller companies. "We are aware of it and we'll see what happens. My hope is the need for a cop on the beat will be diminished," he replied.

But, he also said, "My biggest surprise is that our enforcement division brings case after case of malfeasance by large companies and small ones."

Asked, after his public talk, what he thought about the direction of the accounting profession in the wake of Sarbanes-Oxley, he said, "Accounting certainly has a real challenge." Asked about the profession's leadership, he replied, " I don't want to discuss personalities."

-- John M. Covaleski

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