We can handle CEO cheats

Undersecretary of Commerce Phil Bond says Bush administration proposals for cracking down on corporate dishonesty are right on. Now all he's got do is get Congress to agree.

Charles Cooper Former Executive Editor / News
Charles Cooper was an executive editor at CNET News. He has covered technology and business for more than 25 years, working at CBSNews.com, the Associated Press, Computer & Software News, Computer Shopper, PC Week, and ZDNet.
Charles Cooper
5 min read
Phil Bond may be stirred by the recent spate of corporate accounting scandals, but his confidence about the tech sector's future remains unshaken.

Out pitching President Bush's plans to get businesses to do the right thing, Bond, the undersecretary of commerce for technology, believes the industry can ride out the current storm without major government intervention.

Bond, who simultaneously serves as chief of staff for U.S. Secretary of Commerce Donald Evans, knows he faces a big selling job. It got even bigger on Wednesday, when the Senate endorsed stiffer criminal penalties for corporate cheats than the measures proposed by the administration.

With calls for both more and less federal oversight, CNET News.com talked with Bond to get his views on the proper role of government regulation as well as the future of the technology industry in the post dot-com, post-Enron era.

Q: Why do businesses lie to inflate their stock prices?
A: I think it boils down to individual CEOs and boards, who, for whatever reason, let Wall Street run their companies. They get so caught up in the need to beat the Street that they forget their shareholders? and employees' well being, which is their first responsibility. The president refers to a higher calling that CEOs have, and I subscribe to that view. It's a heavy-duty responsibility in terms of being straightforward and honest.

In what ways do you think the current spate of scandal and uncertainty is affecting the technology industry?
The tech sector has been depressed--flat on its back--and it's most in need of investor confidence. If there's just confidence about a generally strong recovery, you'll find IT managers feeling more confident about making investments.

Do you think the executives in the computer industry are any more or less honest than executives in other sectors?
I don't think there's any difference between the sectors. I think there was more pressure during the boom of the 1990s for companies to beat the Street when there were lots of wild expectations. But I wouldn't say one sector has an edge in CEO honesty.

Is there something specific to technology companies that make them especially vulnerable to these sorts of shenanigans?
They were certainly subject to more temptation to let Wall Street run their companies,

?I wouldn't say one sector has an edge in CEO honesty.?
and that's one of the great things about this proposal of the president to increase the independence of company boards as well as the total independence of auditors. I do think they were under very rare and high levels of pressure from the Street. Everybody was fascinated by this new medium, and that brought a lot of pressure on folks. I think all this will come out the other side with much stronger enforcement.

Don't you think that protecting companies from private suits--a move, I should add, strongly promoted by the tech industry with Congress--has turned out to be a mistake?
I don't think that was a mistake. It was a response to a very real problem of folks going after what they perceived as companies with deep pockets.

What role do you think Congress should now take in reaction to the accounting mess?
I think that markets are generally concerned about an overreaction from Washington. If there was a good, calibrated response that was firm and targeted, that is something we can agree on. But there is some concern that in the legislative process, if people get too caught up in partisanship, that it wouldn't be good. There's always politics back here, and we don't need politics at this time.

Should stock options be considered an expense item?
I've heard about this from the tech community. They?re all geared to go if an amendment is offered. They believe that this is a rank-and-file incentive issue. The real issue is about corporate executives' abuse. The president is calling for clear descriptions of compensation for senior executives in plain English, which will put the onus on the companies.

And your opinion is that they should not be expense items?
I think, all told, no.

Speaking of President Bush's message, why do you think it got such a mixed reception?
Much of that had a political component to it. This is not the time for that, not with this fundamental an issue. Certainly, fair-minded people can disagree on where to draw the line.

Do you think technology CEOs are overcompensated?
As a group, I don't think so. That is a market unto itself.

?There's always politics back here, and we don't need politics at this time.?
What's important is that we have the independence of boards of directors to assert themselves and make sure that things are transparent enough so that individual investors have all the information with which to make their own decisions about voting compensation.

But there are many examples of CEOs receiving exorbitant compensation packages, even as their companies were heading for the dumper. Then there's the case of the ex-CEO of Webvan, who worked out a deal where the company would pay him $375,000 a year for the rest of his life--and then in the event he dropped dead, they would pay it to his wife. Don't you consider that outrageous?
Well, yeah. There are plenty of individual cases to pick out. But you could find other sectors too. This applied to the technology sector in the ?90s when there was an incredible amount of capital at this ?can't miss idea,? which turned out that it wasn't a ?can't miss.? Those were excessive; I'm not going to say they weren't. But is the tech sector guilty of excess? I couldn't quite take it that far.

What role should government play?
That role is fundamentally unchanged. We have to set an environment of innovation. Sometimes there's a reward for great risk. But a critical component of that is serious enforcement, so the bad guys know they'll get nailed. And the other component is transparency, so people won't get sold a bill of goods. We are now a nation of investors, so it's even more of a responsibility than before.

Do you think the bursting of the tech bubble was a necessary evil?
Somewhat. Peter Drucker said the other day this is the fourth (business) cycle he's seen in his 92 years--and none of this is new to him. Some of it was because of overinvestment and excitement, to some degree. But also, there were a number of folks who had some good ideas but were ahead of their time. For example, we all kind of assumed that there would be fiber in every home. We were ahead of ourselves there. Part of the bursting of the bubble was necessary, but if we do the kind of things that can help in making for a recovery, we'll soak up that excess and move forward.