McCain slams 'crony capitalism'
Repeats call for resignation of SEC chairman
WASHINGTON (CNN) -- U.S. Sen. John McCain, the Arizona Republican who has been among those leading the criticism of the nation's executives in the wake of the recent corporate accounting scandals, said the "current threat to our prosperity" comes from corporate executives who have "enriched themselves" at the expense of their companies and employees.
In a Thursday speech before the National Press Club, McCain expressed support for some of the reforms on the drawing board, but said some of the ideas, such those as the bill sponsored by Sen. Paul Sarbanes, need to be strengthened.
"A range of proposals to reform corporate governance and government oversight are now before Congress. Others will be considered in the weeks ahead. Many of their provisions are commendable. Some fall short of doing all that is necessary," he said.
McCain said he is confident that President Bush is fully committed to bringing about reform to the system, but reiterated his call for the resignation of Securities and Exchange Commission Chairman Harvey Pitt, saying he is not the man for the job at this time.
"I hope that Mr. Pitt will continue to serve our country in another capacity," he said.
"What is at risk in this series of unfolding corporate scandals is the trust that investors, employees and all Americans have in our markets, and by extension, in the country's future."
McCain made reference to the scandals involving Enron, Arthur Anderson, Global Crossing, WorldCom, Tyco, and others, and said, "the first principles of free markets -- transparency and trust -- have been the first victims of crony capitalism." He said the vast majority of honest businessmen have been hurt by the actions of a few.
"To love the free market is to loathe the scandalous behavior of those who have betrayed the values of transparency, trust, contract and faith that lie at the heart of a healthy and prosperous free enterprise system, and the patriotism that sustains an aspiring and confident free society," he said.
McCain said he supports the Sarbanes bill, which "requires accounting firms to refrain from providing non-auditing services to the companies they have been engaged to audit. But the bill does allow some exemptions to the prohibition, which I believe should be removed."
Backs independent oversight board
The bill calls for an accounting oversight board to "establish and enforce the standards for audits of publicly traded companies." McCain said disciplinary hearings before the board should be public.
"This oversight board should be completely independent from the industry," he said. "The bill provides that two of the five members of the board come from the profession.
"It's appropriate to have a minority of board members with professional expertise in the industry they regulate. But they should be at least five years removed from the practice of accounting to completely guard against conflicts of interest," McCain said. "Also, the board should be financed as an independent agency or, if as part of the SEC, it should possess considerable autonomy."
McCain said he agrees with President Bush that "corporate executives should be required to return all compensation directly received from proven misconduct."
"Executives who intentionally misstate their companies' financial reports should go to jail," he said.
The senator also offered other ideas in the wide-ranging speech.
McCain said top executives shouldn't be allowed to sell "holdings of company stock while serving in that company.
"They can be allowed to exercise their options, but their net gain after tax should be held in company stock until 90 days after they leave the company."
Also, he said that "with the exception" of a chief executive officer, "all members of corporate boards of directors should have no material stake in the company. The purpose of the board is to represent the shareholders, not themselves and not the management."
Noting that many public companies are owned by corporate pension funds that are controlled by top management of those firms, he said "corporate pension fund committees, and the funds they manage, should function independently of management and be appointed in the same manner as directors of mutual funds."
Referring to the head of the SEC, McCain said Pitt "is a fine man, motivated by good intentions" who "began his tenure with an assurance that under his leadership the SEC would offer 'kinder and gentler' oversight.
"Initially, he seemed to prefer industry self-policing to address corporate misconduct rather than necessary lawmaking to prevent future abuses. Not exactly what is called for in this environment," McCain said. "His past association with leading accounting firms has obliged his recusal from 29 SEC decisions in less than a year."
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