The first of three Securities Industry Association-sponsored Critical Issues Conferences kicked off yesterday in New York, bringing together an array of speakers to address key issues facing the financial services industry. The daylong presentation of speakers and panelists covered a variety of topics, notably the implementation and ramifications of the Sarbanes-Oxley Act, proposed rules governing research analysts, ethics, and upcoming changes in market structure.
The hot topic at the conference was the Sarbanes-Oxley Act. "There’s been a free for all in the financial services industry," said Isaac Lustgarten, a partner with Arnold & Porter, whose presentation discussed the role investment banks played in the numerous corporate scandals. Lustgarten argued that the multiple roles played by investment banks allowed corporate corruption to grow. "We must be more proactive," said Lustgarten. "Sarbanes-Oxley forces the issue."
Patrick McGurn, vice president and special counsel with Institutional Shareholder Services, said that even with a market recovery the industry will continue to feel the fallout of corporate scandals such as Enron, WorldCom, etc. McGurn pointed to a study, conducted by the Brookings Institute, which calculated that corporate scandals had resulted in $42 billion drop in GDP in the U.S. Another survey stated that 71 percent of investors feel fraud is rampant.
The end result of corporate scandals and Sarbanes-Oxley, according to McGurn, has been a previously unseen focus on corporate governance from investors. Corporate governance is becoming a "primary or secondary" area examined when investors determine risk, said McGurn.
Thomas Donaldson, a professor at The Wharton School, made a presentation on corporate ethics, pointing out that behind each executive accused of wrongdoing was a system and environment that allowed the corruption to occur. "The tendency is to focus on the individual rather than on the organization and system," said Donaldson.
Other presentations included a talk by Lawrence Kudlow, co-host of CNBC’s Kudlow & Cramer, panel discussions on changing market structures and on anti-money laundering. Similar conferences will take place in early December in Chicago and in Los Angeles in mid-January.
