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The Honolulu Advertiser
Posted on: Sunday, July 14, 2002

Nasdaq seeks ways to build confidence

By Lisa Singhania
Associated Press

NEW YORK — When Hardwick "Wick" Simmons assumed the leadership of the Nasdaq Stock Market more than a year ago, the challenges appeared straight-forward.

Hardwick 'Wick' Simmons, CEO

Age: 62.

Occupation: chairman, chief executive of Nasdaq Stock Market

Hometown: Milton, Mass.

Education: bachelor's degree, master of business administration, Harvard University; Marine Corps Reserve, 1960-66

Recent career: President and chief executive, Prudential Securities Inc. and Prudential Securities Group, 1991 to 2000; chairman of the Securities Industry Association, 1989

Family: Wife, five children, five grandchildren

Quote: "If there's a market that investors would rather have their money in going forward and it's not us, then we will suffer. But it appears that given the selloff we've had, there are some good values out there. And I know if I'm an investor, I'm going to be sure that I find them."

The stock market was in the process of separating itself from its parent organization, the National Association of Securities Dealers. And although the market had fallen amid the recession and its impact on company profits, there was hope for a quick business turnaround to revive stock prices and restore investors' shrinking portfolios.

But the past year has been more challenging than many Wall Street veterans, including Simmons, could have expected. The Sept. 11 terrorist attacks spared the Nasdaq physically, but affected many firms that use its trading technology. The attacks sent stock prices skidding, and the country's economic and business slump deepened.

Then Wall Street was beset by a series of accounting scandals. As a result, the Securities and Exchange Commission asked the markets for help in curbing abuses. Nasdaq responded with a set of proposals designed to improve corporate accountability among its members.

Still, investor expectations remain low. In a recent interview, Simmons acknowledged that the past few months have been difficult, but he believes that the market is taking steps to reassure the public.

Q: There has been a string of accounting scandals, including Enron, Global Crossing, Tyco and WorldCom. What effect has this had on the market?

A: These corporate revelations have prolonged the sense of nervousness and the market slump by another six months to a year. I really hope we're in the trough of all this right now. There is so much investigation going on now that anyone that has a problem, hopefully it has been brought to the floor.

Overall, though, this has definitely made things worse. There's no question about it. Before markets can really recover, there's going to have to be one to two quarters of solid earnings because people have to see improvement or they're not going to trust it anymore.

Q: What is the mood among the companies that trade on the Nasdaq Stock Market right now? Are they concerned about the market's slump and the lack of confidence that many investors have in corporate integrity?

A: They compete in a very competitive world. And particularly for those who might be using their stock price for acquisition pur-

poses, the fact that the stock price is languishing through all of these kinds of events is of great importance to them. Plus, of course, so many Nasdaq companies give their employees stakes in the business that are tied to stock prices. Many pay packages have been built around stock prices and so many are so far underwater, the question is, 'Is there any incentive in these packages at all?' For all of these reasons, they are extremely aware of these kind of events.

The great, great majority of these companies are absolutely clean and account for themselves as they should. It's particularly true at the Nasdaq because in so many cases, it's the founding families running companies, so any besmirching of a corporate name is personal, not just professional.

Q: Some people say that the accounting problems we're seeing now reflect the excesses of the dot-com boom in the 1990s, when numbers were less important than hype. Is that a fair criticism?

A: I really wish you wouldn't call it a dot-com boom. This was a market boom. Obviously technology stocks led it, but there were a lot of other stocks too. And these scandals have involved companies that aren't just in technology. Let's look at the broad market and not just blame it on technology. As you've seen, we've had Xerox, WorldCom, Enron and Tyco, to name a few, with these problems. This is a broad malaise, not limited to one industry, young or old.

Q: The Nasdaq recently released a list of preliminary proposals to restore public confidence in the market. Can you describe some of the more significant aspects?

A: We're looking at companies' boards of directors. Broadly, we want to make sure there is enough director independence to ensure that the shareholders' interests are being looked out for. That means the majority of directors must be independent. And a supermajority of the company's compensation and nomination committees should be independent. And the entire composition of the audit committee should be independent.

We're also looking at standards of director education, and whether there is a need in financial matters to ensure that there is some capability here.

In terms of disclosure, we think lots of things should be sped up. In particular, the reporting of sales of company stock by directors and executive officers should be reported more quickly. Right now you have to wait for 10 calendar days.

And every company should have its own code of conduct and if not, explain in their proxy why not.

Q: Will these rules prevent future Enron debacles?

A: No. All it does is just make sure that the (people with) oversight functions have all the necessary resources to make the most independent decisions.

I'd love to tell you that we can create a set of rules that can preclude this in the future. But you're always going to have somebody who pulls the wool over your eyes.

I have to believe that in all these big scandals that, at some point, someone in authority understood what was going on but didn't have the courage to step up and stop it.

It wasn't the letter, but the spirit, of the laws and rules that was raped entirely. We want to ensure the health of our markets going forward, so we've got to make sure the spirit of transparency and disclosure are followed here, not just dogged adherence to rules.

Q: Are you concerned that individual investors, who are watching these scandals unfold and, in many cases, their portfolios decline sharply, are going to stop investing?

A: They're still in there. It's down from what it's been, but not as much as you'd think if you'd watched CNBC. Many investors have moved to the sidelines, but most feel the best way to ensure retirement is still to invest in equities. I tell them to be careful, find an adviser you trust. And, candidly, I think this is a good time to get involved because the market's come down so far.