(FORTUNE Magazine) – SHOCK AND DISMAY mingle with barely suppressed stirrings of glee as America's top industrialists ponder the implications of Wall Street's ever-widening scandal. A sampling of chief executives and financial officers of FORTUNE 500 companies turned up few who feel directly victimized by insider trading or other securities crimes, and surprisingly many who still trust the integrity of their own investment bankers. But these hard-working masters of the industrial heartland were nearly unanimous in the belief that in one way or another virtually all the 500 will benefit from Wall Street's miseries. Their consensus is that the stink of scandal in investment banking, tainting innocent and guilty alike, could bring on a welcome shift in the balance of power between corporate America and the financial community. Says Robert P. Luciano, head of New Jersey drug maker Schering-Plough: ''There is likely to be a tremendous backlash.'' Fairly or not, many corporate managers relish this prospect, having suffered through years of rising Wall Street arrogance and power. No group feels more put upon than the 500. Some of the 500's top executives, including David Roderick of embattled steelmaker USX Corp., are heaping on the hot coals with inflammatory public remarks about Wall Street ethics. Most others simply hope to profit from the backlash, gaining such long-sought advantages as lower fees for banking services or laws limiting hostile takeovers. The relationship of the 500 to Wall Street's financiers is a peculiar mix of heartfelt antagonism and profound dependence. The enduring loyalties that once characterized the relations of corporations and investment banks weakened in the mid-1970s as companies began to pick and choose from the smorgasbord of services that different banks provide, hunting for lower fees or special expertise. The older, closer sort of relationship could come back in a big way as corporate managers select a few trusted advisers -- increasingly on the basis of character -- and then stick with them. Experts guess that the 500 pay half to three-quarters of the billions in fees the investment banking industry collects annually. Though industrial corporations almost unanimously regard fees as outrageously bloated, they have seen little choice but to pay them anyway. Federal regulation protecting investment banks from outside competition has limited the banks' incentives to cut prices. And, explains William Smithburg, chief executive of Quaker Oats, companies in the heat of actual or anticipated takeover battles can't do much about fees. ''When companies are under enormous pressure, they don't have much bargaining power, and fees go way up,'' he says. Even in calmer circumstances, the 500 need tens of billions of dollars in new capital every year to fire the great furnaces of industry. The C.E.O.s of America's most powerful companies rely on their investment bankers' ability to raise that money. To provide financing for buyers of its cars, for example, last year Ford Motor dipped into the public debt markets roughly twice a month with help from Goldman Sachs and others, raising $7.7 billion. FAR MORE CONTROVERSIAL than the investment banks' traditional function in capital markets is their expanding role as advisers in dealmaking, which has turned into the growth business of the 1980s. By its very nature this is highly confidential work, and the bankers' counsel does not come cheap. For their efforts in the 25 largest merger and acquisition deals of 1986, which were worth a total of $62.2 billion, investment banks charged clients an estimated $550 million -- an average of some $27.5 million per transaction. Investment bankers often demand fees based on a flat percentage of a transaction's size, rather than on the added value their services create. They charge fees as high as 4% of junk bond financings, for example. On the biggest mergers and acquisitions they might collect fees of around 1% of the deal's value; smaller deals often call for higher percentages. Last year Occidental Petroleum paid First Boston $7 million, or 2.3%, for advice on a $3-billion acquisition. Companies in the 500 naturally tend to participate in the biggest business combinations, like last year's $6.4-billion acquisition of RCA by General Electric and Burroughs's $4.8-billion purchase of Sperry. Restructurings -- some voluntary, some not -- are leading more corporations like Owens- Corning Fiberglas to sell off business units. Companies in the 500 also are among the likeliest targets of hostile raids: Recently Clark Equipment and GenCorp were under attack. Executives fearful of raiders clearly view the rash of insider trading indictments as an opportunity to score political points. And some top managers are not above kicking investment bankers now that they are down. As a securities industry lobbyist complains with some justice, ''The perception is that Wall Street is wounded, and everyone's trying to capitalize on that.'' ; C.E.O.s are suddenly flocking to Congress with appeals for tougher rules on hostile takeovers. The Business Roundtable, the main lobbying group for large corporations, is encouraging its members to speak out. In a single day last March, 11 chief executives of FORTUNE 500 companies addressed the Senate banking committee to plead for help. Prominent among them was Roderick of USX, whose largest stockholder is Carl Icahn, an accomplished raider. Icahn recently owned 11.4% of USX; since January, when Icahn withdrew his proposal for an $8-billion takeover, he and Roderick have been at a nervous standoff. Roderick's testimony to Congress, melding strong language with murky logic, contrived to link ''scandalous criminal behavior'' on Wall Street to the need for legislation that would protect USX. ''While the managerial skills of the financiers remain in doubt,'' he said, ''many of them have demonstrated great skill in soliciting and providing insider information.'' Much of the legislation Roderick and others propose is well considered and reasonable -- but it has nothing to do with criminal behavior on Wall Street. The best of the suggested new rules would generally add more deliberation and disclosure to the takeover process. Jay Higgins, a top banker at Salomon Brothers, which counts more than half of the 500 among its clients, concedes the need for some regulatory changes but confesses exasperation at the muddled thinking often used to promote it. ''Insider trading is a legal issue, and takeovers are an economic issue,'' he explains. ''You can have takeovers without insider trading, and insider trading without takeovers. Both are important issues that should be dealt with -- but not with the same brush.'' Whether or not Congress makes such distinctions, some sort of legislation tightening up on both insider trading and hostile takeovers seems almost inevitable. That could mean a major victory for the much-battered 500. Corporations and securities firms actually agree in principle on a few proposed changes. Among them is making the so-called 13D disclosure rules stricter. They now require a buyer of 5% of a company's stock to report the purchase within ten days. But during those ten days before the filing is due, raiders can continue buying stock secretly, sometimes accumulating stakes approaching 20%. The Securities Industry Association, a trade group, has proposed rules requiring 5% shareholders to stop accumulating stock until they have filed their disclosure statement. The leaders of some companies in the 500's mainstream seem less fearful of takeovers than of inartful legislation that could add to the cost of raising capital. Warns Enrique Falla, financial officer of Dow Chemical: ''Additional government interference is going to retard the growth of our capital markets. What we need to do is enforce the legislation we have.'' General Motors' Roger Smith, a man of moderate views, agrees. ''The availability of capital is the engine that drives America,'' he says. ''I'm very concerned that we not go in and overregulate Wall Street the way we've overregulated the rest of American business. That would be a crime.'' A more immediate worry for executives of 500 companies is the question of whether to trust their investment bankers. Merle Banta of AM International, a leader in graphics, believes the answer is no. His company's 1986 acquisition of Harris Graphics is among the deals the SEC is investigating for signs of insider trading. Says Banta: ''Investment bankers and companies will do whatever is in their own best economic interest, and I doubt if loyalty is much of a factor in that. In the future C.E.O.s are going to be sharing a lot less confidential information.'' Many companies have always trusted these financial advisers less than their lawyers and accountants, according to Peter Solomon, co-chairman of investment banking at Shearson Lehman Brothers. He insists that companies do best when they work intimately with their bankers. But some companies with strong financial staffs have found it easy to keep their bankers at arm's length. Du Pont, which bought Conoco for $7 billion with First Boston's help in 1981, tries to limit its dependence on bankers. ''We rely on investment bankers' input,'' says John Quindlen, Du Pont's chief financial officer, ''but we don't want to be beholden to any outside organization.'' Disillusioning experiences have made other companies wary of Wall Street. One is Goodyear Tire & Rubber, which Sir James Goldsmith raided last year with backing from Merrill Lynch. A few months earlier, Chief Executive Robert Mercer remembers, ''I had an investment bank take a look at us to see what chance there was of a raid. They estimated we stood a 15% chance of being raided. When all our shares were being bought, I asked again, and they said, 'Ninety-nine percent.' '' For this advice Goodyear paid Goldman Sachs a handsome fee. Mercer felt even worse when he learned that Martin Siegel of Drexel Burnham Lambert, who became Goodyear's main adviser in the successful fight against Goldsmith, had sold confidential information to Ivan Boesky in the past. ''He was sitting at our right hand,'' says Mercer. ''I'm very disappointed.'' The disturbing issue of trust is not easy to resolve. C. Martin Wood III, chief financial officer of Flowers Industries, a Georgia producer of baked goods, explains the difficulty: ''You pay an investment banker to give you learned advice. That requires his knowing in full detail your company and your strategy. If you can't get comfortable with that, you might as well not have a banker.'' What to do? The collective wisdom of the executives interviewed by FORTUNE suggests that savvy managers will continue to trust their bankers, at least a little. ''It's not difficult to distinguish people with very high ethical standards from those at the ragged edge,'' says George Bragg of Telex, who believes he has known both kinds of bankers. According to Perrin Long, a consultant to several FORTUNE 500 companies on securities industry matters, anxious clients are already withdrawing some business from firms like Drexel Burnham that appear to be in hot water. A Drexel spokesman points out that the firm's profits have nonetheless increased. Some managers who plan to share fewer secrets with their advisers propose tactics that could backfire. Smithburg of Quaker Oats says he believes in his bankers at Salomon Brothers and Goldman Sachs, with whom has has worked closely for years. But he adds that he may be inclined to exclude them from some especially sensitive meetings in the future. Companies relying on such blunt measures may avoid leaks, but they are likely to get bad advice. A resentful banker may not do his or her best work. Moreover, says Wood of Flowers Industries, ''Investment bankers are like computers. If you put garbage in, you'll get garbage out.'' The most promising way to keep secrets may simply be to give investment bankers less work. Cost-conscious companies have long hunted for ways to cut back on banking services, but the insider trading scandals provide a powerful extra incentive. Executives agree that the prime target for cutting is merger- and-acquisition advice.

''More and more companies are turning to their own resources in M&A,'' says N. J. Nicholas Jr., chief operating officer of Time Inc., which publishes FORTUNE. ''When you look at the enormous fees charged by some people who in my view don't know what they are doing, you question why you need them at all.'' Compared with the young know-it-alls of Wall Street, in-house advisers come cheap. According to a survey by Robert Half International, a recruiter, the typical chief financial officer of a company with $750 million a year or more in revenues -- roughly the top three-fourths of the FORTUNE 500 -- makes $100,000 to $166,000 a year. An investment banker two years out of graduate business school can earn that much. Executives say that when you strip away the glamour, dealmaking is mostly routine work. And many corporate leaders believe that what some of their staffers may lack in dealmaking sophistication they can make up in specific expertise. Says AM International's Banta, who wants to acquire more graphics businesses: ''We know a lot more about our needs and that industry than the investment bankers do.'' Money-saving ideas gladden the hearts of C.E.O.s now more than ever, and the shock of Wall Street scandal is galvanizing their resolve to insist on lower fees for the banking services they really need. ''The Ivan Boesky affair has taken some of the bloom off the rose,'' says Clarence ''Red'' Johnson of Borg- Warner, a Chicago conglomerate that is in the midst of a major divestiture program and is evaluating what appears to be a friendly takeover attempt by GAF. James K. Baker of Arvin Industries, which makes pollution-control devices for cars and trucks, is still incensed by the fee of nearly $1 million his bankers demanded for advice during Arvin's eight-week skirmish with Canada's Belzberg family last year. At the very least, fees charged by the firms enmeshed in the scandal are likely to be challenged by clients. ''They just won't carry the same prestige, the same credibility,'' says Du Pont's Quindlen. If so -- and at this point, such ideas are just straws in the wind -- major-league firms like Kidder Peabody and Goldman Sachs might be reduced to competing on the basis of price. Adds Quindlen: ''You'll see clients getting more backbone when they negotiate fees.'' Goodyear is one of many FORTUNE 500 companies planning, in Chief Executive Mercer's words, ''to be a little bit difficult in the fee department.'' Banta of AM International says the C.E.O.s he talks to are refusing to accept fees based on a flat percentage of a transaction's size. Instead, according to Banta, top corporate managers are trying to base fees on cold calculations of the added value their investment banks provide. WEAKENED though they may be, the investment banks are not going to roll over and play dead. Certainly they will not lower their fees if they can avoid it. The desire to keep fees high is one reason many investment firms have entered controversial areas like merchant banking. By risking their own capital in the deals they arrange, bankers can make a more convincing argument that their services are valuable enough to deserve outsize rewards. Unfortunately, as firms act more like principals in transactions, their potential conflicts of interest can only increase. And some merchant-banking deals, such as the Jimmy Goldsmith-Merrill Lynch bid for Goodyear, are just the sort of hostile takeovers that infuriate C.E.O.s. A regulatory change that could push fees down is a modification of the Glass-Steagall Act, which bars commercial banks from competing with investment banks in such areas as underwriting corporate securities. In March the Senate voted to maintain the present boundaries between the two kinds of banking until 1988, but lobbyists doubt the investment banks have won more than a short reprieve. Most of the corporate executives FORTUNE interviewed heartily favored letting the commercial banks into Wall Street's private preserves. The hope of price competition that will lower fees is one reason. Already as active in the investment field as the law allows, commercial banks like Morgan Guaranty, Citibank, and Bankers Trust are itching for more freedom. Says one corporate chief executive: ''Why do I trust the commercial banks more? Because they haven't been caught yet.''