Restoring investor confidence: an agenda for change.(Henry M. Paulson)

Address by HENRY M. PAULSON, Chairman & CEO, The Goldman Sachs Group Delivered to The National Press Club, Washington, D.C., June 5, 2002

Good afternoon, I come here today as the CEO of J Goldman Sachs. But, perhaps even more importantly, I come here as an individual who believes passionately in the strength of our free-market system -- a system which generates growth, creates jobs and wealth, rewards initiative and fosters innovation like no other in the history of the world.

Ours is an economy that has proved its resilience again and again, most recently and most dramatically as it recovered from the terrible attacks of September 11th.

Today we face another challenge -- what some have called a crisis of confidence in the way in which companies do business. This, coupled with the lingering sense of vulnerability and uncertainty resulting from September 11th as well as international tensions and conflict, has seriously impaired the confidence of investors, CEO's and Boards of Directors alike. It has been a drag on the economy, the performance of our capital markets and on corporate activity, including mergers and acquisitions and new investment.

This began last Fall, with the collapse of Enron, at the time one of the most admired corporations in the country. That collapse rapidly became a scandal, with mounting evidence of gross mismanagement and malfeasance. One of the nation's most respected accounting firms -- Arthur Andersen -- was swept up in the Enron debacle, its survival still very much in the balance. In Congress and elsewhere, new and unflattering light has been shed on the practices of other companies. My own industry has come in for criticism for, among other things, the way it conducts investment research. Just six months after Enron's bankruptcy, its collapse has led to a general and often harsh examination of how we do business in America.

In my lifetime, American business has never been under such scrutiny. And to be blunt, much of it is deserved.

Don't get me wrong. Our economy is not full of Enrons, ready to collapse when someone takes a close look at their books. And the overwhelming majority of American corporate executives are men and women of integrity who are competent and highly committed to the long-term success of the companies which they lead. But the Enron debacle and subsequent revelations have revealed major shortcomings in the way some U.S. companies and those charged with their oversight have gone about their business. And it has, without doubt, eroded public trust.

Self-correction has already begun. And, despite the difficulties of the moment, I see the post-Enron environment as one of opportunity -- a chance for all interested parties to reassess our current practices and renew our basic principles.

But we need to do so in ways that maintain the vitality of our market-driven economic system. Regulation is, of course, crucial to the proper functioning of our markets. But finding the right balance between regulation and market forces is critical. We've done so before. And I am confident that we will be able to strike such a balance yet again.

The stakes, after all, are enormous. And they transcend those of individual firms or investors. The U.S. economy and its financial markets are, rightly, the envy of the world. Since June 1981, the economy has almost doubled, productivity is up 50%, and about 40 million jobs have been created. During this same period, the stock market has appreciated by more than 2-1/2 times. But our markets are not just beneficiaries of our remarkable economic performance. They also drive it by mobilizing capital, unlocking value, encouraging entrepreneurship and rewarding good management. Our financial markets are the deepest, most efficient, and fairest to be found anywhere; they are models that others, in developed and developing economies alike, strive to emulate.

But they are not perfect. And it's time that we fix them.

As part of that discussion today I would like to provide …