NO BUSINESS-AS-USUAL INVESTORS MUST PUSH BUSINESS TURNAROUND.

Byline: Phil Angelides 

TODAY, as millions of families are still reeling from financial setbacks suffered during one of the longest stock market slumps in American history, the president is telling us - but obviously with his fingers crossed - that the worst is over.

There are some positive signs. The flurry of corporate corruption stories that greeted us from the front pages of newspapers has begun to recede into the business pages, below the fold. Convictions have been secured against about 50 of the most egregious offenders. Corporate reform legislation has been signed into law.

Yet, I worry. There are legitimate concerns that this president and the new congressional majority are not fully committed to corporate reform. The U.S. Justice Department's corporate fraud task force has been very slow to respond to congressional oversight requests. A critically important post - the head of a new public accounting board - is still vacant. The Securities and Exchange Commission has not yet righted itself from the enforcement shipwreck that occurred while the hapless Harvey Pitt was at its helm. Prospects are dimming that the president and Congress will ensure that the SEC has the funding needed to do its job. And only time will tell whether Pitt's replacement, William Donaldson, will be able to restore public confidence in the beleaguered agency.

We are at a pivotal moment, with reform's fate still uncertain. Will Rogers once said, ``Let Wall Street have a nightmare and the whole country has to help get them back in bed again.'' By January 2002, some 84 million Americans owned stocks. Whether investments are made by individuals or by institutions such as pension funds and mutual funds, it is the working men and women of America - teachers, construction workers, farmers, police officers, firefighters and many other hard-working people - whose money is at risk.

At this critical moment, investors must unite to ensure that corporations play by the book. That is why my office recently released a report - The Power of the Purse - that calls on investors across the nation to use their market strength as a weapon for corporate reform. The report outlines six principles to serve as guideposts for an energized shareholder movement.

First, it is time that investors start acting like the owners they are. Shareholders should exercise the power of the vote and push for new rules that strengthen investor rights. They should not hesitate to boot ineffectual, self-serving, or corrupt boards of directors or turn thumbs down on stock-option plans that serve only the interests of corporate executives. They must be willing to organize and take actions that reverberate through the marketplace and change the discourse in corporate board rooms.

Second, shareholders need to reward value and sustained performance. That is different from sanctioning a culture of greed. The average CEO of a major corporation made 42 times the average hourly worker's pay in 1980, 85 times more than hourly workers in 1990, and a staggering 531 times more in 2000. Enough is enough!

Next, investors must demand the highest standards of ethical conduct and transparency. They must embrace the common-sense practice of transacting business only with companies known for their honest dealings. That's why, in response to a rash of corporate financial outrages, I joined with my colleagues from North Carolina and New York in telling investment banks and money managers that they must meet new standards of disclosure and clean up their conflicts or risk losing the right to do business with our states.

Pension funds and other institutional investors also need to re-evaluate the passive investment strategies of recent years. The prevailing theory has been that replicating the stock indexes diversified risk. But that doesn't work if companies aren't playing by the rules. Institutional funds need more hands-on management of their portfolios and must steer clear of investments in companies that refuse to reform.

Further, shareholders must insist on good corporate citizenship, and corporate responsibility should always be a factor in investment decisions. There is a remarkable correlation between company executives who move their headquarters offshore - in name only - to avoid taxes, flout environmental laws, or exploit their work force and those who see nothing wrong with enriching themselves while their stockholders get short shrift. To discourage this type of conduct, the California Treasurer's Office is prohibiting business dealings with expatriate U.S. corporations with sham offshore mailboxes.

Finally, and most important, we need to promote the creation of long-term value. Investors should lead the way by ending demands for short-term results at the expense of all else. Quarter-by-quarter expectations need to be replaced by shareholder and management commitment to the long term.

Without the help of investors, regulators cannot rid our markets of corporate corruption. An open, fair and free economy is part of our national heritage. We must all do our part to renew the faith in our financial system that is so necessary to sustain America's economic success into the 21st century.