Arguing Against Tighter Controls Is Short-Sighted

For years I was blessed with perfect eyesight. Then one day, when I was getting my driver's license renewed, I stepped up to the testing machine, where the clerk asked me to read the letters on the second line. Complying, I explained there was something wrong with the machine.

"Honey," she said, "there's nothing wrong with the machine that a pair of glasses won't fix."

I thought of that while reading through a speech given last month by Tom Donohue, the pugnacious president of the U.S. Chamber of Commerce, to the Securities Industry Association in New York. What caught my eye in particular was Donohue's complaint that as many as a thousand public companies wouldn't be able to comply with new rules requiring them and their auditors to document, test and certify the adequacy of their financial controls. As Donohue saw it, if a thousand American companies couldn't comply with a new requirement, there must be something wrong with the regulatory machine, to use my optical analogy. Somehow it never occurred to him that the problem was with the companies.

Donohue has become a walking apologist for everything that's wrong with corporate America. His latest foray is a defense of Hank Greenberg and his AIG insurance empire in an interview with the Financial Times. Donohue expresses "sympathy" with Greenberg and uses it as a springboard for launching into his now-familiar rant about overzealous prosecutors who are acting "far out of bounds," driving directors from boards, driving capital to Europe, distracting management, discouraging risk-taking and generally destroying the American economy.

First of all, it seems rather strange that Donohue would come to the defense of a company that had just admitted it had overstated shareholder equity by $1.7 billion and misled regulators and to the defense of a man whose lawyers were caught red-handed removing documents from one of the company's overseas subsidiaries. And Donohue's defense becomes even more curious when we learn that a foundation controlled by Greenberg and AIG contributed at least $17 million to the chamber in recent years for various projects, including an all-out assault on the tort system, which costs a company like AIG billions of dollars each year in claims. Given all that, and that nobody yet knows the full extent of the problems at AIG, you'd think the head of the country's largest business organization would have the good sense to keep his mouth shut.

AIG aside, there's scant evidence to back Donohue's hysterical assertion that new regulations are "killing the goose that laid the golden egg" of American prosperity. None.

One common thread through corporate scandals is that companies didn't have good internal controls and auditors didn't spend enough time looking under rocks. So it should hardly be a negative that auditing bills are higher and companies have had to invest in new controls.

Similarly, the point of reform was to force directors to spend more time, ask more questions and take more responsibility. Understandably, some of them don't like that. But at $130,000 a year in average compensation, I doubt the positions will go begging.

Are some companies now deciding not to sell shares to the public and subject themselves to tighter regulation? I hope so. In case you forgot, during the last boom investors lost billions buying shares of companies that had no business going public.

Where Donohue really goes off the deep end, however, is his bleating about overzealous prosecutors who use the threat of criminal prosecution to extract excessive fines from financial service companies, denying them due process. The evidence is that these companies really did feed lousy research to customers, allow after-hours trading, rig insurance bids and knowingly manipulate earnings -- theirs or someone else's. And most of the irresponsible executives are gone while their companies, except for Arthur Andersen, have not only survived the big fines, they are prospering.

Even without my glasses on, that looks like a pretty good outcome.

Steven Pearlstein will host an online discussion at washingtonpost.comat 11 a.m. today. He can be reached at pearlsteins@washpost.com.