The need for mandatory disclosures will certainly continue, but firms should also be encouraged - and in some cases required to make otherwise non-mandatory disclosures if accounting statements are misleading or incomplete. I would further argue that it is simply not enough for companies to disclose information. Investors also have to pay attention to the information disclosed. A lot of information underlying the proposed governance reforms is already disclosed. For example, by reading proxy statements, investors can make up their own minds about such issues as whether the audit committee members have sufficient financial expertise and how many stock options executives have received. What is clear is that the outstanding performance of the U.S. economy over the past decade lulled investors into a false sense of security. Recent events may, therefore, serve as a wake-up call - not only to management that the market is watching them, but also to investors and analysts to pay attention to the information already disclosed. While there have been many major improvements in disclosure practices over the past several years, with hindsight, I think that less progress was made than initially hoped and more could have been done. In short, I believe that there is a public policy need to rethink the entire disclosure framework. In my remarks this evening, I have underscored a number of issues that I believe merit immediate attention. Not one of these issues presents obstacles that cannot be addressed through the cooperative efforts of private and public sector participants.
From my perspective, a more neutral tax policy toward executive compensation would reduce the reliance on stock options and not penalize firms if they opted instead to use other forms of contingentpay mechanisms. A reconsideration of stock options is already under way. Clearly, there is room for  4  BIS Review 57/2002  changing the incentives that have been driven by tax policy. For me, what is key is that firms have the flexibility to structure new types of incentive compensation and that public policy be responsive to these initiatives. A deeper issue, in my view, relates to dividends. It is true that dividend payout ratios - dividends divided by earnings - have fallen over time and have been replaced by share repurchases, so that overall payout ratios have remained remarkably flat. The periodic payment of dividends to shareholders represents a formal corporate policy that is more precise and more visible than share repurchase programs. The ability to make dividend payouts is a barometer of cash flow. Dividend payments and the consequent need for external finance subject firms to market discipline. Currently, however, share repurchases offer certain advantages over cash dividends from a tax perspective. For one, capital gains taxes on share repurchases are lower than income taxes on dividends. Second, with share repurchases, investors can time their capital gains or losses, whereas with dividends, investors cannot choose when they will receive their taxable cash inflow.