The corporate safety net still has holes in it

Each of the experts stressed that crooks bent on stealing from a company will still take their chances and some will succeed. Regulators can never pass laws that will force executives to act with integrity — or force investors to do their homework before they buy stock.

Little has changed to shrink the incentives for taking big risks, business as well as ethical, that can give rise to misdeeds.

Wall Street analysts and reporters still seek guidance about company revenue each quarter. Businesses pay a price for missing targets by even a penny or two. The earnings guidance is "like heroin" for analysts, said Colleen Sayther Cunningham, who leads a trade group for corporate finance officials. "Once you put it into your arm, you can't kick it."

There has been no slowdown in the race for higher executive pay, the experts said. Chief executives won a median pay raise of 30 percent in 2004, twice the increase from 2003, according to the Corporate Library, a watchdog group that rates public companies on corporate governance. Repeated studies have shown virtually no connection between high compensation and good corporate performance.

"As long as CEO pay is so fundamentally out of whack, we cannot say that boards are doing their job or that corporate governance reform has been accomplished," said Nell Minow, an investor advocate and co-founder of the Corporate Library.

Some companies have moved away from compensating top executives with stock options now that they are required to count them as an expense. But in numerous cases, they have simply replaced options, which pay off only if a company's stock performs well, with restricted shares, which promise a gain for executives no matter what. Critics refer to such compensation as "pay for pulse."

William J. McDonough, former leader of an accounting industry oversight panel, said recent initiatives, including a drive by the SEC to beef up disclosures about executive pay, are heartening. In all, though, there is "not as much [progress] as I'd like to see. I don't think anybody including me has any theory of how executive compensation should be set."

In addition, investor advocates said they fear that once the Enron trial ends and the focus on corporate crime fades, regulatory budgets could again get squeezed. "Already, recent appropriations have not matched agency funding requests," said Barbara Roper, chief of investor protection at the Consumer Federation of America.

The outcome of the Enron trial could have a more profound impact on attitudes among corporate executives in the long run than the regulatory changes, said Harvey J. Goldschmid, a law professor and former SEC official.

"Deterrence is very important, and this trial is of large consequence for that reason," Goldschmid said.

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