New York City, New York - New York State Attorney General Eliot Spitzer offered his perspectives on corporate governance at a luncheon sponsored by ICCR's Global Finance and Community Economic Development Issue Group on February 12.

Speaking to 140 ICCR members, associates, and guests from the financial community, Mr. Spitzer said, "The creation of the imperial CEO was a breakdown of oversight by the the links in the corporate governance chain." Boards of directors became too tied to CEOs; auditors "put the important information in the footnotes of financial statements"; lawyers didn't questions the corporate deals being made and investment advice was compromised with the merging of the underwriting and analytical functions at investment banks. Meanwhile, institutional investors "did not ask the tough questions of corporate management."

While Sarbanes-Oxley's Financial Accounting Oversight Board and new regulations from the New York Stock Exchange requiring independent boards will help, "there needs to be an emotional change even more than a rules change," to ensure that reforms will be lasting.

On December 20, 2001, Mr. Spitzer, along with Securities and Exchange Commission Chair Harvey Pitt, the National Association of Securities Dealers, the New York Stock Exchange, the North American Securities Administrators Association and state securities regulators, announced a settlement with twelve investment firms to resolve issues of conflict of interest. The Global Settlement concluded a joint investigation begun last April into the undue influence of investment banking interests on securities research in brokerage firms. This concern arose from Mr.Spitzer's investigation showing that analysts at Merrill Lynch were under pressure from the investment banking division to provide misleading and overly favorable ratings in order to attract and keep investment banking business from these rated companies. Mr. Spitzer said the Global Settlement would be wrapped up in couple of weeks. "We're still doing the paperwork."

Last fall, ICCR member organizations filed shareholder resolutions with investment houses, including Citigroup, Morgan Stanley, Goldman Sachs, Bear Stearns, Lehman Brothers, J.P. Morgan Chase and Wachovia, asking that the compensation of analysts be entirely separated from the investment banking business. Substantive meetings with investment bank officials led the shareholders to withdraw the resolutions after the Global Settlement was announced

Mr. Spitzer also spoke of how his office has used the "New Federalism" (federal policies which increase the power of the states) to advance the causes of clean air, access to medicine and corporate reform. Now there is an effort by the federal government to take back state power. "The government is proposing that states no longer have authority to investigate alleged violations in the securities industry." This raises concerns as to how the rights of shareholders, consumers and the larger community will be protected.

Mr. Spitzer praised ICCR in its work of holding corporations accountable and called on all investors to become more active and engaged. "Vote your proxies. Ask management the hard questions: 'Explain your business model. Explain your compensation package.' Institutional investors need to use their voice to challenge companies in order for there to be lasting changes in corporate practices."