A historic sea change or just congressional chest-thumping?

CEOs, directors, accountants, lawyers and academics come down on all sides when asked whether the corporate-oversight bill Congress passed last week will really change how companies operate and whether the attempted crackdown on financial abuses will have more benefits or costs.

"You will see much more rigorous compliance. You will see much less creative finance. You will see significant diminution in conflicts of interests," predicts Joel Seligman, dean of Washington University law school in St. Louis. He calls it watershed legislation, the most important since 1930s laws created the fundamental tenets of the current market-regulation system.

But William Lerach, a San Diego lawyer and lead attorney in an investor class-action lawsuit against Enron Corp. -- whose actions started the calls for greater oversight -- dismisses the changes as "the reenactment of the current law with a great deal of huffing and puffing. ... Not a single word will help a cheated investor get a penny back."

Still, most agree the law will cause change, consternation and some confusion. Directors will be affected more than CEOs and accountants more than lawyers, most believe. But Congress created more work for all, not to mention a raft of new business for consultants, lawyers and many others.

Just how much change is triggered, and how effective it is, won't be known at least until the Securities and Exchange Commission works out rules implementing the law and appoints the newly created five-member oversight board with powers to investigate and punish. "Congress enacted some structural girders and then left it to the SEC to fill in all the remaining framework," says John Coffee, a law professor at Columbia University who worked with Senate staffers in drafting parts of the law. The biggest unresolved detail, he says: whether the oversight board appointees will be "people of stature and independence or flunkies and fellow travelers of the accounting industry."

In the meantime, though, here's a look at what some executives and experts say about how much reform is coming:

CEOs and Directors

Turnaround specialist Robert "Steve" Miller, currently chairman and chief executive of Bethlehem Steel Corp., Bethlehem, Pa., and a director at four other public companies, believes the law formalizes and underscores changes boards already have been making. "Ever since Enron imploded, every board I'm on has asked, 'What lessons can we learn and what should we do differently?'" he says. Former Enron director Robert K. Jaedicke "was my distinguished accounting professor at Stanford," Mr. Miller notes. "Seeing him publicly pilloried had an impact. We don't want that to happen to us."

But Harry M. Jansen Kraemer Jr., chairman and CEO of Baxter International Inc., doesn't expect to act any differently the next time he enters a board meeting for the big health-care products-maker in Deerfield, Ill. "This [law] will have zero impact on how I think and behave, mostly because we already have a phenomenally high level of corporate governance," he says. Last November, for instance, Baxter stopped using its outside auditors PriceWaterhouseCoopers for any consulting work.

Is Mr. Kraemer nervous about personally certifying the accuracy of Baxter's results, as the law requires? "You're the 83rd person who has asked that question," he replies half-jokingly. "Why would I be nervous?" he asks. "Isn't that my job?"

Charles Elson, who runs the University of Delaware business school's Center for Corporate Governance, predicts the certification requirements "will create massive bureaucratic procedures ... that may lead to more form over substance." Mr. Elson says he expects more meaningful board reforms to result from pending New York Stock Exchange governance rules.

Warren Batts, former chairman and chief executive of Premark International Inc., now owned by Illinois Tool Works Inc., who serves on the boards of Cooper Industries Inc., Houston, and Methode Electronics Inc., Chicago, doesn't think the law will affect how companies operate on a day-to-day basis. "This will serve as an administrative burden for companies who are doing the right thing, and the bad companies will just scheme to get around it."

Mr. Batts adds that the new provisions also hinder chief executives from doing their jobs. Instead of handling strategy and employees and overseeing communication with customers, CEOs will spend more time ensuring that their policies and numbers are accurate, he says. The CEO "is not supposed to be handling the books."

Jeffrey E. Garten, dean of Yale School of Management who also serves on the boards of Aetna Inc., in Hartford, Conn., and Calpine Corp., San Jose, Calif., worries that the law and other new regulation will "micromanage corporate management and will lead to a society in which bonds of trust are replaced by an extreme form of legalism." The result, he says: Business innovations will ultimately suffer. "I think it's a good bill, but when you combine this with more regulations from the SEC, there are some legitimate questions about whether you can do all this and not affect innovation," he says. "CEOs are going to become more risk-averse and big investments on risky projects are going to be held back."

Bethlehem Steel's Mr. Miller also supports the new legislation but worries that "if we end up as directors checking out the financial statements to the nth degree and surrounding ourselves with lawyers and accountants we may not have any time to focus on future strategy of the company." In addition, he says, "if we make the job of being a director too onerous and demanding with no good deed going unpunished, there will be fewer of the best individuals willing to serve."

"The impact on boards is huge but the impact on CEOs is only moderate," Mr. Miller says.

UNDER SCRUTINY Some key provisions of the corporate-governance and accounting-oversight bill: Accounting Regulation • Creates an SEC oversight board that has investigative and disciplinary powers   • Prohibits auditors from offering certain types of consulting services to corporate clients   • Requires accounting firms to rotate partners among client assignments every five years   Corporate Responsibility • Requires CEOs and CFOs to forfeit profit and bonuses when earnings are restated due to securities fraud   • Prohibits executives from selling company stock during blackout periods, requires insiders to report all company stock trades within two days   • Prevents executives from receiving company loans unavailable to outsiders   Criminal Penalties and Oversight • Raises the maximum penalty for securities fraud to 25 years   • Increases CEO and CFO penalties for false statements to the SEC or failing to certify financial reports   • Creates a 10-year felony for destroying certain key financial-audit documents and e-mail   • Lengthens statute of limitations on securities fraud to five years, or two from discovery   • Prohibits investment firms from retaliating against analysts who criticize the firm's clients   • Directs civil penalties from SEC enforcement actions to accounts that benefit investors victimized by securities fraud   • Increases the SEC's budget

Some directors worry about whether their audit committees will be able to handle their expanded roles. Congress "may be asking audit committees to do more than they have the time and resources to do," says Jay Lorsch, a Harvard business school professor and board member at Brunswick Corp., of Lake Forest, Ill., and Computer Associates International Inc., of Islandia, N.Y. Audit panels that don't fulfill the heightened expectations could face more investor lawsuits, he suggests.

Raymond Troubh, interim chairman of Enron and a member of nine publicly held companies, also anticipates an increase in shareholder lawsuits, a prospect that also "will result in more querulous and demanding directors. There will be a lot more questions of officers to make sure the [financial] information is accurate. ... All board members will be more nervous than they were before."

Because the new measure requires more independent and activist audit committees, Mr. Troubh says he's encouraging several companies where he serves to recruit retired accountants from major audit firms as directors. "These guys are floating around playing golf," he observes. Instead, "they ought to go on audit committees."

Accountants

The law increases oversight of accountants, forces some changes to how the firms operate and could cut auditors' income, but the industry feared worse. Some changes may even be welcomed by accountants. By stepping up penalties on corporate executives and clarifying some accounting rules, the bill makes life easier for accountants because corporate executives will be less likely to pressure them to sign off on flimsy financial statements. "What they like are rules that are very clearly set out," says Robert Bricker, an accounting professor at Case Western Reserve University in Cleveland.

That said, if accountants do run afoul of the rules, they are more likely to be punished than under past industry-controlled disciplinary boards. "There have been dozens and dozens of awful performances by auditors that have gone unsanctioned," says Walter Schuetze, a former chief accountant at the SEC.

Still, the reform bill doesn't address the core issues, Mr. Schuetze says. "It is more than chipping away at the edges, but the center of the cake is left unchanged." Until companies lose all discretion to value their assets, he says, they still will be able to manage their earnings, an issue that was at the core of many of the major recent accounting blowups.

Two parts of the legislation -- the requirement that the partners who oversee audits be rotated every five years and the limitation on consulting operations -- will directly affect the way accounting firms operate. But it could have been more onerous. "I think the accounting industry should be relieved it doesn't require the companies to change auditors every five years" instead of auditors' partners in charge of a firm's audits," says Jay Nisberg, an accounting-industry consultant.

On the second issue, accounting firms have been shedding some consulting work on their own. "The marketplace is already moving in that direction, so we don't see that as a big change," says Eugene D. O'Kelly, chief executive of KPMG LLP. KPMG and the other big accounting firms all have spun off their information-technology consulting services or are in the process of doing so, but continue to provide services such as tax consulting, corporate finance and other services.

John Biggs, chief executive of teacher's retirement fund TIAA-CREF and a former member of the Public Oversight Board, the previous industry regulatory body that disbanded earlier this year, welcomes the new regulatory board with powers to investigate and discipline the profession -- powers its predecessor lacked. But he worries that having chief executives sign certificates may lead to "excessive due diligence," as with doctors who perform every possible test on patients to defend themselves if malpractice claims are filed. That, Mr. Biggs warns, could run up the cost of business.

Eugene Goldman, a lawyer at McDermott, Will & Emery and formerly of the SEC's division of enforcement, says the boost to the SEC's resources "will result in more cases being brought [and] that will contribute to the ability of class-action lawyers to piggyback on the SEC's efforts." As a result, he adds, there could be heightened exposure for accounting firms.

Says Case Western's Mr. Bricker, "The only thing that terrifies the auditors is litigation."

Lawyers

Plaintiffs' law firms are likely to get a boost from the act's more generous statute of limitations for the filing of securities-fraud suits. "Any time you have longer to bring a case, you are going to have more private lawsuits filed. That is a virtual certainty," says Christian Mixter, a former SEC litigation chief, currently a partner at law firm Morgan, Lewis & Bockius in Washington D.C.

But the act also imposes new duties on lawyers, and possible sanctions that include being prohibited from representing clients before the SEC. The act requires the SEC to set minimum professional standards for lawyers, including a requirement to report "evidence" of fraud and other material violations of securities laws to companies' top officers and possibly to their boards.

"That puts me as a securities lawyer in an untenable position," says Horace Nash, a corporate partner and chairman of the securities group at law firm Fenwick & West in Palo Alto, Calif. "I am not in the business of making materiality judgments. How do I know what is material to the company?" He adds that the requirement potentially puts him in an "adversarial position with my client," and could make clients less likely to entrust sensitive information.

But Washington University's Mr. Seligman says "the provision scares lawyers a lot more than it should." One reason: Lawyers aren't required to report violations outside the organization, thus preserving the attorney-client privilege. "When you look at what the legislation just did with auditors and boards," Mr. Seligman says, "this is far milder responsibility being asked of lawyers."

For officers and directors, though, some lawyers say, it's going to be a new game, played at high speed with stepped-up disclosure requirements for everything from insider trading -- shortened to two days from as many as 40 days -- to new demands for instant release of material information that used to dribble out in weeks. "Every day, every company will be facing the question of whether something that happened that day will have to be disclosed to the SEC or in the press," Mr. Nash says.

Much of that could be a good thing, says Richard Viola, a lawyer specializing in securities law at Helms Mulliss & Wicker, in Charlotte, N.C. "A lot can happen in 40 days," he says. "Enron melted down in less than 40 days."

Stanley Keller, chairman of the Federal Regulation of Securities Committee of the American Bar Association, says the act's greatest impact might be in changing attitudes of corporate officers, and ultimately those of the investing public. "It's like hitting everyone on the head with a heavy stick to get their attention," says Mr. Keller, a securities lawyer in the Boston firm Palmer & Dodge.

Ronald Berenstain, a securities lawyer in the Seattle firm Perkins Coie, agrees the act will heighten the awareness of CEOs' and CFOs' personal responsibility for financial reports, but adds that financial markets, which have punished even hints of financial-reporting irregularities, already are doing that. "For corporate officers, it's a two-edged sword: They have to be concerned about the market and the regulators," he says. "If there's something you don't understand, you better ask a question."

Henry Lesser, co-chairman of the mergers and acquisition group at Gray Cary Ware & Freidenrich of Palo Alto, says the requirement that often-obtuse accounting explanations be presented in "plain English" could have the greatest impact. "If this whole environment produces plain numbers," he says, "it will indeed produce a sea change."

The change has a price, though. Smaller companies especially may have trouble landing independent directors. The costs of compliance are likely to soar. "There will be more finance people and more lawyers getting hired by all these companies in order to keep track of their reporting," says Mr. Nash of Fenwick & West.

And finding firms willing to shoulder the risk of SEC sanctions may pose problems. "Law firms may be reluctant to deal with disclosure issues on a very limited basis" if they're not already handling the company's SEC disclosures, says Bob Messineo, a partner at Weil Gotshal & Manges in New York. (The firm is representing such accounting-scandal casualties as Enron, Global Crossing Ltd. and WorldCom Inc. as they restructure.)

In sum, says Richard Phillips, a former SEC official, currently head of the securities department at the law firm Kirkpatrick & Lockhart in San Francisco, "There are some parts [of the law] that are important and some parts that are a bunch of fluff." The new scheme for regulating auditors, for example, will profoundly alter the relation between auditor and client. But stiffer penalties for officer and director crimes aren't likely to deter misconduct any more than prosecutions under existing law.

"You are repairing a decade of gradual erosion of the culture of compliance. You are seeing a strong reaction to the excesses," Mr. Phillips says. "These reactions will recede somewhat. [But] I think you end up with a stronger system of regulation, and a stronger culture of ethics, and stronger corporate governance."

-- Ken Brown and Ken Gepfert contributed to this article.

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