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Regulation alone not answer to Enron: Greenspan

Federal Reserve Chairman Alan Greenspan said on Tuesday that corporate behavior has improved since the Enron Corp scandal broke and warned against looking to excessive regulation for answers.

"Corporate governance has doubtless already measurably improved as a result of the greater market discipline in the wake of recent events," Greenspan said in a speech at New York University.

In relatively wide-ranging remarks about the fallout from the collapse of the energy-trading company, Greenspan offered some criticism of securities analysts who he said "have been persistently overly optimistic" about earnings prospects.

That tended to be even more the case when the forecasting firms were underwriting the companies' securities, he said.

PRESSURE MOUNTS FOR EARNINGS

Greenspan also said that chief executive officers were under increasing pressure to meet "short-term elevated expectations" for earnings, which has led some to turn to accounting devices that only obscure true performance.

One consequence of the Enron collapse has been to focus intense scrutiny on how clearly companies account to investors for their revenues and earnings, and on the accounting firms themselves and on ways they may obscure results.

Greenspan said Congress clearly wants to take action because of the Enron case and said he agrees that it at least seemed appropriate to set stiffer rules to ensure chief executive officers fully disclose earnings to shareholders.

But he cautioned that "significant expansion of regulation" was not necessarily the best solution to current problems.

"Regulation has, over the years, proven only partially successful in dissuading individuals from playing with the rules of accounting," Greenspan said.

"Some changes, though, appear overdue," the Fed chief said. He said current accounting for options has created "perverse effects on the quality of corporate disclosures" that made it harder to evaluate earnings.

Specifically, failing to include stock-option grants as employee compensation "has increased reported earnings and presumably stock prices," Greenspan said.

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