Integrity Matters
August 6, 2003

Corporate world must restore confidence

Question: (E-060)

Dear Jim:

The past year's crackdown on corporate corruption has helped lure investors back to the stock market, but some companies still haven't grasped the importance of reform.

How can I trust an economic system that seems unable to fix its problems?


Perhaps we have been reading some of the same news stories. Mr. William Donaldson, head of the Securities and Exchange Commission, was recently speaking about the sweeping anti-fraud legislation, enacted at the height of the scandals at Enron, WorldCom and other companies that wiped out billions in investors' savings. In his next breath he acknowledged that there are still senior executives with greedy, yet seemingly legal, practices that risk the retirement savings of the rank and file. Mr. Donaldson mentioned that companies (really the leaders) have to develop a new "moral DNA" - a culture that will last beyond the current management. Since when is ethical behavior new? Moral principles have been around since the time of Adam and Eve. Even though individuals may neglect to live by higher standards, there is no reason to act like there were no guidelines. Donaldson mentioned that mutual fund companies should be required to make fuller disclosures of fees, which are too complicated for many consumers to understand. Once again, disclosure ought to be 100% open, clear and understandable. Basic integrity by those advising customers ought to be self-evident that the customer is to be served honestly. Do we really need federal and state laws to mandate straight talk?

He goes on to suggest that investors should be told if their brokers have been given special inducements to sell particular mutual funds. What kind of investment advisor would not be forthcoming about conflicts of interest? Certainly an honest broker would be up front with any recommendations that grew from a personal agenda. Young people today have created a three-letter word that expresses my response to this comment: Duh! It is a sad commentary if those we need to trust with our life savings are hooking us with artificial promises so that they can take advantage of our lack of sophistication and leave us with less that we started, while they "fee us into oblivion."

Restoring confidence is job No. 1 of leaders, from Wall Street to Main Street, from Sacramento to Washington D.C. The time is now not to be lured back to the market by manipulative and self-serving worldly wizards of money. Rather we want to be led back to a renewed level of confidence in a marketplace by concerned "fellow advisers with integrity" to what once was good in our society and could be good again.

Leaders, are you listening?

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