Cleaners move in at America, Inc.

After the years of corporate excess, New York Stock Exchange prepares to bring in tough regime.

A powerful New York Stock Exchange committee last night took unprecedented action to restore the battered reputation of corporate America, issuing a tough new set of corporate governance guidelines and listing requirements.

The recommendations, which the regulatory committee said were designed to strengthen "accountability, integrity and transparency", include naming and shaming errant companies and a focus on increasing "the role and authority" of independent directors.

It wants to tighten the definition of "independent" and for boards to be made up of a majority of independents who hold regular meetings without executive directors present. It wants audit, nomination and compensation committees to be made up wholly of independents - whereas only audit committees are currently subject to that requirement - and more financial nous on the audit committees. It is also proposing a five-year ban on auditors joining companies whose books they monitor and believes shareholders should have the opportunity to vote on all share option plans.

'Restore trust'

The proposed changes are urgently required. US investors have lost faith with America's big corporates. NYSE chairman Dick Grasso said: "Investors demand and deserve truly meaningful reform and substantive change to restore their trust and confidence in our publicly traded companies, our regulatory authorities and our markets."

Their fall from grace has been far and fast. Two years ago, America's top businessmen and Wall Street bankers were almost rivalling Hollywood for glamour and conspicuous consumption. They were the untouchables, the forces behind a stream of mega-mergers financed by soaring share prices and debt, and companies that had posted dazzling growth rates.

For the investing public there were vast fortunes to be made from overnight sen sations, while celebrity CEOs wheeled home annual pay packages running into hundreds of millions of dollars.

Then came the dotcom collapse and the Enron scandal. Companies were suddenly struggling to pay onerous debts and some of their accounting practices looked like tricks with smoke and mirrors.

Some of the highest profile - and highest paid - bosses have been ousted, with immense rewards for failure. Look no further than Chuck Watson, who was ejected from Dynegy last week amid tales of sham "round-trip" trades which involved buying and selling at the same price to boost revenues. He is leaving with $40m, even though the shares have fallen from $50 to $9 in a year.

Then there was Bernie Ebbers, formerly of WorldCom, who has been awarded a walkaway payment of $1.5m a year - for life. The market value of WorldCom has collapsed from $180bn to $8bn since 2000, a bigger destruction of shareholder value than Enron. But in the past three years Mr Ebbers was paid $45m. Even more recently, Tyco chief Dennis Koz lowski resigned. Mr Kozlowski was the man for whom the term "celebrity CEO" was coined. He was dubbed "deal-a-day Dennis", buying 700 companies in three years. He was paid $325m in the past four years, but the shares have collapsed amid concerns about debts and accounting in the last six months and Mr Kozlowski quit this week as he was charged with personal tax evasion.

At the same time Merrill Lynch analysts, once feted as gurus, have been exposed for recommending stocks they privately regarded as "a piece of shit", forcing chief executive David Komansky to issue an apology to investors and his firm to pay a $100m fine.

Many investment bankers are now viewed as little more than chancers whose only concern is their own wealth. As for accountants, those charged with monitoring corporate behaviour, the Andersen debacle probably means their status as independent, reliable professionals will take years to rebuild.

The about-turn in the reputation of USA Inc has been so dramatic that this week Hank Paulson, chief executive of Goldman Sachs, said that confidence in US companies was at the lowest point he had witnessed in his lifetime."To be blunt, much of it is deserved," he added, and hit out at the "shortcomings" of big US companies and their auditors. He called for urgent action to rescue American corporations from their unprecedented "position of low repute".

Mr Paulson, who is on the board of the NYSE, wanted a series of more controversial changes to restore confidence, starting with a complete ban on auditors also providing consultancy services to their audit clients.

He wanted executives who cash in share options within a year of their company filing for bankruptcy to be forced to hand back their gains. That appears to a direct reference to the share dealings of Enron's executive team, who made hundreds of millions of dollars in the months before the company became the world's biggest corporate collapse. The new proposals will be put to a vote of the NYSE board on August 1.

The Remedy

NYSE corporate accountability and listing standards committee's proposals include:

· increasing the role and authority of independent directors;

· tightening the definition of "independent" director;

· improving the education and training of directors;

· regular meetings of non-management directors;

· financial experience for the chair of the audit committee;

· board committees to be fully independent;

· audit committees must receive no payment other than directors' fees;

· shareholders to be given right to vote on all stock option plans;

· brokers to be banned from voting customers' shares without their instruction.

NYSE rule violations will result in public reprimands, suspension or delisting.

The committee also made recommendations to Congress and the SEC. They include:

· setting up a new private sector organisation to monitor public accountants;

· a request for more funds for the SEC to increase monitoring and enforcement;

· setting up a panel to study the concentration of employee pension investments in company stock;

· giving the SEC power to ban directors;

· more prompt disclosure of insider trading;

· asking the SEC to insist on full information before "proforma" or "adjusted" information.