A healthy 'self-cleansing': what can and should be done now to restore confidence in the system.

• Author: Whitehead, John C.
• Position: Endnote

Ed. Note: John C. Whitehead retired in 1984 as co-chairman and senior partner of Goldman, Sachs & Co. Both during and subsequent to his 38-year career with the investment banking firm, he has been active in many corporate, educational, civic and charitable organizations and their boards (including past service with the DIRECTORS & BOARDS editorial advisory board). In November 2001 he was named chairman of the Lower Manhattan Redevelopment Corp., which is overseeing the rebuilding of the World Trade Center area. This article is adapted from Mr. Whitehead's testimony on March 19, 2002, in the Enron matter before the Senate Committee on Banking, Housing and Urban Affairs.

I AM HONORED to appear before you this morning as I have done a number of times in the past; first back in the early 1970s as chairman of an SEC landmark study of the effect of institutional investors on securities markets, later as chairman of the Securities Industry Association and also as co-chairman of Goldman Sachs on various matters, still later as Deputy Secretary of State and again on one occasion as chairman of the Federal Reserve Bank of New York. I appear today, however, as a former non-management director and audit committee chairman of more than a dozen public companies -- not all of them, I assure you, at the same time.

I have always championed the importance of our securities markets and the competitive structure of the institutions that serve them. They are a national asset and an important part of our leadership position in the world economy. The confidence that investors have in the system must be protected at all costs. I have also championed the importance of diligent independent non-management directors who represent the stockholders effectively and the public interest.

The Enron disaster is a severe blot on the generally good record that the system has had over the years. Indeed, it is an embarrassment to those of us who have been involved in that system. It is still hard for me to believe that what was coming to be considered one of America's great companies could collapse so rapidly in such an ignominious way, with such huge losses to employees, to lenders, to stockholders, and to the reputations of everyone involved: the management, the board, the audit committee, the auditors, the bankers, the security analysts and the customers. It would seem to me that grounds for criticism exist in many places and that a thorough public review and investigation...