Time to draw a line in the sand.

The headlines from the enormous ethical scandals in the U.S. of the last few years-Worldcom, Enron, Tyco, HealthSouth--are beginning to fade somewhat, even as the main actors in some of these scandals face indictment, have gone to trial or reached plea bargains. Regrettably, similar scandals are beginning to emerge in Europe and elsewhere. In both the U.S. and Europe, senior financial officers are at the center of these scandals.

All of us who practice in the area of finance--all of us as members of FEI--have had a dark shadow cast over us by these developments. This is sad, particularly given FEI's leadership in promoting ethical behavior. FEI has a long history of focusing on ethics and, for years, has required members to sign our Code of Ethics. Our recently revamped Code of Ethics was incorporated in the Sarbanes-Oxley legislation.

The fine work of FEI and others on ethics not withstanding, the ethical breakdowns have continued. The time has come for FEI to draw a line in the sand. We must do more to encourage and support our members and others who are committed to work ethically, and to deter those inclined to do otherwise. FEI is moving forward, recognizing the following:

* Codes of ethics and moral persuasion are not enough to carry the day--in spite of 5,000 years of wonderful spiritual guidance, people continue to go off the path.

* The underlying causes of corporate collapses are corporate governance structures that permit an individual or a small group of individuals to consolidate power, to shroud their activities and to manipulate and intimidate those around them.

* There is the need for corporate governance structures to incorporate robust checks and balances and to be characterized by transparency.

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FEI and the Institute of Internal Auditors (IIA) have joined together to study and then define the roles and responsibilities of finance and internal audit (IA) within the corporate governance process. The study will build on the Business Roundtable's (BRT) Principles of Corporate Governance, and sets forth the contributions of finance, as a component of senior management, and IA in relation to BRT's six guiding principles (you can find them at www.brt.org).

FEI and IIA believe the study will, first, serve as a reminder to our members of their roles and responsibilities within the governance process, and, second, enhance the understanding and awareness of the other participants in governance process of the roles of finance and IA. A better understanding of these responsibilities by our members will encourage them to step up to their duties. A better understanding of these obligations by the other participants, including other members of senior management, supports our members by helping to ensure that they are properly positioned to address their responsibilities.

Defining roles and responsibilities, and enhancing the participants' awareness and understanding, represents a contribution to the checks and balances required in the governance process, and to the associated transparency. It encourages our members to address their responsibilities, supports them in addressing these duties and serves as a deterrent to those inclined to disrupt the proper discharge of these responsibilities.

H. Stephen Grace Jr.

FEI Chairman, 2003-4