REMARKS
                              
                             BY
                              
                   CHAIRMAN ARTHUR LEVITT
                              
             SECURITIES AND EXCHANGE COMMISSION
                              
                  DIRECTORS' COLLEGE, 1999
                              
                     STANFORD LAW SCHOOL
                              
                              
                       MARCH 22, 1999


   Thank you, Joe, for your generous introduction.  I very
much appreciate the opportunity to be here this evening.  In
the last five years, Directors' College has attracted many
of this country's most influential thinkers and
practitioners in the area of corporate governance.

   This year is no different in that respect.  But, we
gather here tonight during a period in which the broad idea
of corporate governance has attracted an unprecedented
degree of public attention.  One could viably argue that
recent high-profile financial reporting failures in
corporate America created this attention.  Others may point
to the increased emphasis placed by the Commission on issues
that come under the umbrella of corporate governance.

   I don't disagree with those assertions, necessarily. But,
more fundamentally, I believe that the increasing
imperatives of technologically and globally driven markets
are at the source of this  greater attention on corporate
governance.  In the process, more and more people are
recognizing that corporate governance is a critical
by-product of market discipline.

   That's an enlightened and a realistic view.  In an age
where capital flows worldwide just as quickly as
information, a company that does not promote a culture of
strong, independent oversight risks its very stability and
future health.

   For much of modern American corporate history, this
evolving consensus was anything but a consensus or even
evolving. In 1970, one of the nation's largest companies,
Penn Central declared bankruptcy.  In the two years before
its collapse, the railroad's directors approved dividend
payments of more than $100 million while debt soared and
working capital deteriorated.  The passivity and
short-sightedness of Penn Central's board prompted nearly
universal criticism.

   One article remarked that, "The sad case of Penn Central
is worth mentioning not because it is unique, but because it
is not.  Many another U.S. corporation has gotten into
trouble because its directors did not do what they were
supposed to do -- that is, keep a warily inquiring eye on
management."

   Later that year, after conducting hundreds of interviews
with corporate executives and directors, a Harvard Business
School study concluded that the modern large or medium-sized
firms' board of directors had ceased to function as a
meaningful check on the corporation's chief executive
officer. A senior partner in a consulting group reported in
the same study that he didn't know of a single board that
really dug into the strategy of the business or held
management accountable for results.

   But, today, thanks to the swift flow of
publicly-disseminated information, corporate decision-making
has become more accountable to the true owners of every
public company:  the shareholders.  Over the last two
decades, our companies have become more open. Boards are now
armed with the information they need to make key decisions
and to monitor the performance of corporate managers.
Shareholders are now better able to hold corporate directors
and officers accountable for their actions.

   Why has this happened?  Because our capital markets and
ultimately, investors demanded it. They want timely,
accurate and accessible information. They want
responsiveness and they want efficiency.  And through the
Internet and other new technologies investors have a greater
capacity to evaluate those demands more than ever before.

   Yet, the same markets that have prompted more and more
companies to improve their governance structures and
communications with their shareholders have also pushed many
other companies to dangerous and ultimately, self-defeating
practices.

   As many of you know, in recent months I have expressed
concern that the motivation to satisfy Wall Street earnings
expectations may be overriding common sense business
practices.   In the process, I fear we are witnessing a
gradual, but noticeable erosion in the quality of financial
reporting. I'm not the only one.  In his annual report
released earlier this month, Warren Buffett called the
attitude of disrespect toward accurate financial reporting a
"business disgrace."

    Many of you, I'm sure, are just as frustrated and
concerned about this trend as we, at the SEC, are.  It's
difficult to hold the line on good practices when
competitors operate in the gray area between legitimacy and
outright fraud.

   A gray area where sound accounting practices are
perverted; where managers cut corners; and, where earnings
reports reflect the desires of management rather than the
underlying financial performance of the company.  While the
problem of earnings management is not new, it has risen in a
market unforgiving of companies that miss Wall Street's
consensus estimates.  For many, this pressure has become all
too hard to resist.

   As a result, the link between a company's directors and
its financial reporting system has never been more crucial.
Let me, if I can, take a few moments to discuss this
relationship.

   Six months ago, I announced a coordinated plan to address
the practice of earnings management.  Since then, the
response from corporate management -- CEOs and CFOs;
investors; leaders of the public accounting profession and
the halls of academia has been remarkable.  I want to
commend those in corporate America and the accounting
profession for their willingness to step forward and address
these insidious practices.

   One such effort has been the work of a Blue Ribbon
Committee empaneled to develop recommendations to strengthen
the role of audit committees.  Sponsored by the New York
Stock Exchange and the National Association of Securities
Dealers and ably co-chaired by John Whitehead, a former head
of Goldman Sachs, and Ira Millstein, a leading corporate
governance expert, this group released their report last
month.

   I'm glad to see you were all given a copy of the report
in your materials.  This report, bound in an attractive blue
and red cover, was not meant to be a handsome addition to
your bookshelf.  It merits and it demands to be read and
re-read.

   It is a report that is the product of the leadership of
the business community, the accounting profession, the legal
profession and Wall Street.  As a result, these
recommendations are far-ranging, meaningful and relevant to
every participant in the financial reporting process.

   Suffice to say, I was very much looking forward to the
panel's results.  I feel passionate about audit committees.
For some of you, this might be the first time you have ever
heard someone associate passion with a board function.

   But, qualified, committed, independent and tough-minded
audit committees represent the most reliable guardians of
the public interest.  Sadly, stories abound of audit
committees whose members lack expertise in the basic
principles of financial reporting as well as the mandate to
ask probing questions.  In fact, I've heard of one audit
committee that convenes only twice a year before the regular
board meeting for 15 minutes and whose duties are limited to
listening to a perfunctory presentation.

   Compare that situation with the audit committee that
meets five times a year before each board meeting; where
every member has a financial background; where there are no
personal ties to the chairman or to the company; where they
have their own advisers; where they ask tough questions of
management and outside auditors; and where, ultimately, the
investor interest is being served.

   There is no reason why every public company in America
shouldn't have an audit committee made up of the right
people, doing the right things and asking the right
questions.

   I believe that the recommendations outlined in the report
give companies and auditors the tools they need to make
strong and independent audit committees the rule rather than
the exception. They are aimed at strengthening the
independence of the committee.  They seek to make audit
committees more effective.  They enhance accountability
among the board, the outside auditors and management.

   And, there are few words more reassuring to investors
than accountability.  It sends a clear, unambiguous message
that you will not sacrifice reputation, stability and
long-term growth for short-term vagaries and expectations.

   Some, however, have suggested that these recommendations
may expose audit committee members to increased liability.
As the theory goes, audit committees that write a general
description of their responsibilities and have meaningful
discussions with management and outside auditors on
important financial reporting issues expose themselves to
greater liability. If I were an investor, I would find it
hard to believe and would be terribly distressed if the law
prevented my board from doing just those things.

   These aren't academic concerns. What we are talking about
goes to the very heart of what audit committees and boards
of directors do. And, that is to fulfill a legal duty and a
moral mandate to be the shareholder's representative.

   So, when the typical refrain on legal liability is
invoked, I can't help but wonder if the implicit warning is
that boards should be extremely careful what fights they
pick or where they should tread.  Controlling exposure to
unreasonable litigation risk is clearly an appropriate
concern, and I don't want to minimize it.  But when it's
used unrealistically to thwart board action in the interest
of shareholders, it's nothing more than a red herring.

   I refuse to believe that more information, more public
disclosure, and more active and diligent oversight creates
greater legal exposure. I refuse to believe that the clear
and necessary delineation of basic responsibilities creates
greater legal exposure. I refuse to believe that concern
over the quality of financial reporting instead of just
merely the acceptability of it creates greater legal
exposure.  And, I refuse to believe that the vigorous
protection of the shareholder interest creates greater legal
exposure.  These beliefs are not based on a hope of what the
law should be, but what most corporate lawyers recognize it
actually is.

   If Delaware corporate law and the SEC's own
administrative actions stand for a single proposition, it is
that an active, involved and educated committee or board can
rest more easily at night than a board composed of directors
who merely go through the motions and watch the clock.

   Now, I appreciate that boards face inherent limitations
on what they are able to do.  I've been a director, and I
know what heavy burdens they bear. Directors must review and
approve mergers, acquisitions, and combinations that are
more complex than ever before.  They must answer the demands
of institutional investors, who are vocal and vigilant in
defending their interests.  They must hire and fire
managers, and set their compensation based on targets that
constantly change.

      I can see how, sometimes, the job might feel like it
is an impossible one.  We should not unfairly second-guess
directors -- particularly in the bright light of hindsight -
- and make them unreasonably vulnerable.

   I also recognize the practical concern of being able to
attract and retain qualified individuals.  But, these
recommendations won't unduly exacerbate those demands.  In
fact, they give audit committees the tools to manage and
deal with those tasks more pro-actively, more competently,
and more effectively.

   In specifically proposing that the outside auditors
discuss with the board its observations on the quality, not
just the acceptability of the financial statements, the Blue
Ribbon Panel recognized the systemic importance of
justifying decisions that directly affect the quality of a
company's financial reporting.  When auditors and the board
engage in frank and meaningful discussions about the
significant, but often gray areas of financial accounting,
the ultimate interests of the company and its shareholders
are served.

   This recommendation is not meant to supplant the board's
judgment for that of management's or the outside auditors.
But, an effective system exists when the board, including
the audit committee, the financial management and outside
auditors form a "three-legged stool" to support responsible
financial disclosure and active and participatory oversight.

   On the plane coming here last night, I began reading over
the profiles of the ten outstanding directors for 1998. I
was struck by a number of salient and common traits among
the group -- above each of their personal accomplishments.
First, they were all intimately familiar with their
company's operations.  Second, they all recognized, in the
words of one director, to "strike a balance between short
and long-term goals."

   Third, they all showed a complete willingness to not only
identify problems but also find solutions to them.  Fourth,
they were all willing to quote "ask the damnedest
questions."  I especially like that one.  And fifth, their
dedication and integrity as directors were never questioned.

   While these all sound straight forward enough, they are,
by no means, universally performed. We've seen too many
examples of companies whose boards could and should have
been doing better jobs.  There are too many boards that over
look more than they oversee; too many boards that substitute
CEO directive for board initiative; too many boards that are
re-active instead of pro-active; and too many boards who
never rejected an easy answer and never pursued a tough
question.

   As directors, you may frequently hear the words, duty,
obligation and responsibility.  After a while, they may
sound even a bit trite.  But, as directors, those words are
your code -- the driving forces behind your mission. And the
effects of how you do your job extend far beyond one
company's balance sheet.

   By safeguarding the value of shareholder interest, you
safeguard the integrity of our markets.  No regulatory body
with all the resources in the world can fully oversee the
management of every company.  We depend on you.  Your
supervision complements our oversight.  You are in an ideal
position to monitor new developments and troubleshoot
problems as they arise.  The force of your example in
leadership far outweighs any authority the SEC might wield.

   I ask you to continually assess your priorities as well
as management's.  I ask you to continually weigh the level
of commitment to shareholders. How?  Ask yourself as well as
management straightforward questions.

   For instance, how many times a year does the board meet?
If you and your colleagues are meeting a handful of times a
year, how can you really expect to exert a strong degree of
oversight?   American companies today are more competitive
than ever.  Strategic plans are not only complex, but also
more fluid in order to meet the demands of new technology
and greater competition. Being an effective corporate
director requires time and commitment.  It requires
involvement and understanding.  That doesn't come from one
or two meetings a year.

   What kind of people are on the board with you, and how
did they get there?  Too many companies, today, have board
members with personal or social ties to the CEO.   I'm
reminded of the story of a secretary who asked a young man,
"How'd you get to be on the board of this company at such a
young age?"  The man shrugged modestly and explained, "I ran
into my father and he took a liking to me."

   Do you and your colleagues speak your minds or are you
expected to be nothing more than "parsley on fish?"  This
last phrase was used by an independent director who quit
after she felt the company wasn't acting in the best
interest of shareholders.  I wonder how many companies
actively search for directors who won't be outspoken; who go
with the flow -- no matter if it's moving in the wrong
direction.  And, I wonder how many companies try to ease out
directors who regularly speak up at meetings in defense of
the shareholder; who are willing to break the "code" of
silence.

   I am disturbed when I read comments such as this one: "By
speaking out, directors are virtually guaranteed that they
will be blackballed from other boards."  Companies that
adopt such an attitude are only biding their time before
investors decide that their money is better invested
elsewhere.  In fact, strong, pro-active, and longer-term
oriented companies are probably falling over themselves to
attract the best corporate directors they can get.

   Here are some other questions: do you and your colleagues
understand where the company has been and where it is
headed?  Is there a plan for the future?  Is management
succession accounted for?  Does the board regularly review
and evaluate the CEO?  Does the board meet at least once a
year with the auditor?

   These questions are among the first I would ask in
evaluating the independence and effectiveness of a board.
But they are only the beginning.  The marketplace of the
21st century will only create new challenges for America's
companies and its board rooms.




          *              *              *

   The dynamic nature of today's capital markets creates
issues that increasingly move beyond the bright line of
right and wrong.  More often, financial market participants
grapple with questions in a gray area where there are no
easy answers.  It is in this realm where judgment and
integrity are indispensable for effective corporate
governance.

   These are not easy times.  Pressures proliferate.
Responsibilities overlap. Objectives run counter to each
other. Demands often are at cross-purposes.  But, investors,
regardless, continue to value companies that achieve value
through honesty and hard-work.

   Your individual and collective commitment as directors
who honor and practice these values is absolutely necessary
for long-term health and prosperity - not only for your
company - but for our country.

    Thank you.