INTERVIEW OF THE WEEK: Leland Graul knows what strikes fear into the rarified world of corporate America and he is underwhelmed by the contrite demeanour of Wall Street, writes Ed Power

Leland Graul sniffs derisively when it is suggested that corporate America's rush to abase itself at the altar of ethical governance following the Enron scandal is likely to prove of enduring consequence.

As a former senior member of the Securities and Exchange Commission - the federal investment markets watchdog - the flinty Chicago-born accountant is perfectly placed to judge the authenticity of the wails of contrition currently echoing through the upper echelons of a US business community reeling from the string of controversies that has rocked the sector in the months since Enron's demise.

His stark assessment - delivered in a laconic drawl worthy of a B-movie gumshoe - will chill the marrow of Irish investors pinning hopes of an upturn in the US economy on a lasting shift away from the cavalier ethics and boardroom machismo that precipitated the Enron debacle.

"We are witnessing a knee-jerk response; both to Enron and to the litany of corporate scandals that followed it," he says.

"It would, however, be naive to believe that attitudes will permanently change and that companies will become more ethical, unless they are forced to do so by tough and uncompromising regulations.

"Remember, Enron wasn't a once off. This isn't the first time corporate America has fallen under suspicion. The public has posed uncomfortable questions in the past.

"Corporate ethics came under scrutiny in the 1960s and 1980s. There was much talk of profound and lasting changes back then and look at how things reverted to type before very long. The impact of recent events is unlikely to be any more enduring. Right now, we're just trying to figure out where we go from here."

US business culture remains implicitly vulnerable to fraud because of its emphasis on clearly defined rules rather than loftier guiding principles, Mr Graul contends. Corporate regulators are engaged in a constant game of catch-up with duplicitous executives determined to stretch regulations past breaking point.

"In the US, regulation rather than principle governs corporate conduct. This encourages evasion. When a rule is laid down in black-and-white, sooner or later someone is going to find a way to sidestep it.

"So the enforcement authorities are locked in an unenviable situation. They make new rules and people find ways around those rules. Contrast this with the European model, where legal principles rather than narrowly framed checks and balances hold sway. It's much harder to evade a principle."

Mr Graul is deeply ambivalent towards the Sarbane-Oxley Act, the controversial anti-corruption package rushed through US Congress in the Enron aftermath. Though admirable in its intentions, Sarbane-Oxley is, Mr Graul believes, a slapdash piece of drafting, one riven with ambiguities more likely to sow confusion than usher in a new era of openness and responsibility.

With both the corporate sector and regulatory authorities expressing uncertainty over Sarbane-Oxley's practical implications, indecision among a US investment community yet to come fully to terms with the high-tech slowdown has deepened exponentially.

Until confidence returns, Irish companies clamouring for venture capital will continue to struggle, cautions Mr Graul.

"Everybody agrees that Sarbane-Oxley is noble in its intentions. But we don't know just how it is going to play out. So you have this hugely significant piece of legislation that places onerous responsibly on corporations - and nobody really knows what it really all adds up to."

In the post-Enron environment, the heaviest responsibility sits on the shoulders of audit committees - which must be seen to be policing clients on a year-round basis.

A cursory glance over a corporation's accounts will suffice no longer - auditors are expected to probe ceaselessly, says Mr Graul.

"The buck now stops with the auditors. The scrutiny is on them. Enron would not have happened if the auditors had identified fraudulent practices. We now expect auditors to scrutinise accounts aggressively for evidence of wrongdoing.

"In the heady atmosphere that marked the late 1990s, auditors more often than not gave the benefit of the doubt. Currently, the opposite attitude is prevalent. Auditors are taking on the role of enforcement agencies."

Long-term stability can be guaranteed best through the appointment of an uncompromising figure as SEC chairman.

He pours scorn on suggestions that the honour might be bestowed upon Mr Rudolph Giuliani, the lionised former mayor of New York, recently touted as a possible chief executive for embattled telecommunications giant WorldCom before the arrival of Mr Michael Capellas from HP.

"The SEC took a battering after Enron. People began to question its relevancy. It needs to reinforce its importance by becoming more meticulous.

"The SEC has to show a tough streak - and it needs to have a tough guy in charge. I think it's farcical to suggest that a politician such as Mr Giuliani fits the bill."

Mr Graul is heartened by scenes of corrupt executives being led from their offices in handcuffs. Threatened with public shame, many senior figures are now thinking twice about flirting with corporate fraud.

"Officers are arresting senior executives at their places of employment and leading them away in handcuffs. It's called the 'perp walk' and it sends out a very powerful message.

"Not only will law enforcement agencies pursue and punish corporate fraud, they will also expose perpetrators to public ridicule. For the first time we are saying to executives who break the rules 'if you do this, we will shame you'. That's an enormously important cultural shift."

Irish companies investing in the US must cleave to the new consensus - or suffer vastly diminished returns, warns Mr Graul.

"Even more importantly than being above suspicion of wrong-doing, they must be seen to be above suspicion of wrong doing. This means having pro-active audit committees and appointing non-executive directors who will actively stand up to wrongdoing. The day of vanity non-executive appointments is past. Irish companies, like all the others, are going to have to come to terms with this new environment."

In light of his pessimism over corporate America's ability or willingness to go cold turkey on amoral practices, Mr Graul is surprisingly upbeat over the longer-term prospects for investors. Given time, fund managers will set aside their misgivings over the health of the market and capitulate to steadily mounting pressure to release capital.

When they do so, funds will come flooding back.

"It is a cycle. Sooner or later, fund managers are going to have to release investment capital. The money will return to investors. Right now everybody is pretty uptight - I would say the pendulum has swung to the polar opposite to the can-do atmosphere prevalent in the 1990s. But it will swing back. It always does."

Name:

Leland Graul

Age:

53

Family:

Married with four children

Background:

A native of Chicago, he holds a degree in accounting from the University of Missouri

Career:

A trained accountant, Mr Graul served as a professional accounting fellow in the office of the chief accountant of the Securities and Exchange Commission in Washington DC.

Having joined BDO Seideman in 1986, he has overseen debt and equity transactions with companies in the United Kingdom, Canada, Germany, Ecuador, Israel, Mexico, Australia, Hong Kong, China, and Indonesia. Recently he acted as adviser to Schering when it listed on the New York stock exchange.

Mr Graul is currently serving his second term on the US Financial Accounting Standards Board's emerging issues task force. Heis the co-author of the American Institute of Chartered Public Accountants guide to SEC reporting

Why he is in the news:

In the aftermath of the collapse of Enron, Mr Graul's in-depth knowledge of the regulations governing corporate behaviour in the US has been in unprecedented demand. His expertise on SEC reporting has made him a highly sought lecturer around the world. He was recently the key speaker at a Dublin seminar entitled "The Brave New World of Accounting", which was organised by BDO Simpson Xavier