Business chiefs in US sweat as Washington plans crackdown

Corporate leaders in the US, facing a clamour in Washington for businessmen caught fiddling the books to do time in jail, have an image problem. His name is Dennis Kozlowski.

The former chief executive of the Tyco congolomerate is awaiting trial on 12 counts of tax evasion, fraud and conspiracy. He could be jailed for 44 years if convicted. He is also under investigation for possible misuse of company funds.

Corporate scandals from Enron to WorldCom have created a crisis of trust which has set stock markets plunging around the world – as well as calling into question the corporate connections of both the President, George Bush, and his Vice President Dick Cheney. Fellow company chiefs would no doubt have preferred Mr Kozlowski to keep a low profile. Instead he has been photographed swanning aboard his yacht, Endeavour, off Nantucket, the New England "playground of the rich".

"No Shame" was The New York Post headline on a report which said corporate disgrace hadn't cramped Mr Kozlowski's "high-rolling lifestyle". While the "shamed fat cat" awaited trial, and Tyco's shares were going through the floor, it went on, "he's been living it up on his $25m antique yacht and enjoying the Atlantic views from his $12m Nantucket mansion".

The former Tyco chief's partying is an embarrassment to CEOs taking urgent steps to protect themselves and their companies from the risk of prosecution for financial fraud. Industry associations as well as individual corporations are searching for ways voluntarily to raise their accounting and ethical standards in an effort to pre-empt even harsher reforms now hurtling towards adoption as laws on Capitol Hill.

Senator Patrick Leahy, a Democrat from Vermont, spoke for many in Washington when he remarked that "these people deserve to go to jail. They've ruined the lives of thousands of people." Even the White House, which has taken a more moderate approach, has started to play up prison as just punishment. "The most important thing is to get a bunch of CEOs and directors and throw 'em in jail," one unnamed executive close to President Bush told BusinessWeek.

Few doubt that America is now on the brink of radical reforms in the way its companies present earnings and pay executives and directors. The only question is whether the changes will come voluntarily from the business community or through the many laws being debated in Congress.

Last week, the Senate unanimously approved doubling the penalty for securities fraud from five to 10 years, and voted to stop companies making loans to chief executives.

With elections in November, no politician is willing to be seen as soft on corporate fiddlers. The same concern drove Mr Bush to travel to Wall Street earlier in the week to announce his own reform blueprint. The numerous changes now being aired include forcing heads of public companies personally to certify earnings statements released to shareholders. Bernie Ebbers, the ousted former chief of WorldCom, insisted he was unaware of his own company's actions in overstating earnings by $3.8bn, an assertion since questioned by other former executives.

Pressure is also growing for new restrictions on the granting of shares and especially of stock options to senior executives. While the threat of jail for CEOs catches the public mood and doubtless sends chills through many executive suites, legal experts doubt it will become reality in more than a very few cases. Prosecutors would have difficulty proving willful encouragement by executives of trickery in their books. And wealthy CEOs would always have access to the best lawyers.

As one of Mr Kozlowski's Nantucket neighbours said last week: "Have you ever heard of any of the big guys taking a real fall?"