President Bush talks tough. To hear him tell it, "My administration will do everything in our power to end the days of cooking the books, shading the truth, and breaking our laws." He wants to restore "confidence" so much that he used the word 13 times in his speech on Wall Street, and 9 times at a press conference the day before.
Despite all the rhetoric about getting "tough" on corporate crime, Bush's Corporate Responsibility plan is pretty anemic-- not what you'd expect from a president desperate to keep the current crisis from becoming a major political liability for his party and his own presidency.
Take, for example, the Executive Order establishing the Corporate Fraud Task Force. It sounds good. But there's no additional funding or staff, just a directive that a bunch of government agencies talk to each other more often about the things you'd expect they'd be talking to each other about a lot these days - securities fraud, mail and wire fraud, money laundering, and tax fraud. In fact, the Los Angeles Times reports that in May Bush actually reduced the number of FBI agents on the corporate crime beat by 59, redeploying them for the anti-terrorism effort. So it looks like the Fraud Task Force is itself a fraud.
Then there's Bush's call to increase the SEC's budget by $100 million. That's a pittance compared to what SEC observers say is needed. Just two weeks ago, both parties in the House voted 422-4 to increase the SEC's grossly underfunded $430 million budget by 77%. In fact, Bush's increase barely matches a request made in March by SEC Chair Harvey Pitt to increase the commission's staff and pay. A request, by the way, that was denied.
Bush praises the House for "passing needed legislation to encourage transparency and accountability in American business." But the Republican bill he refers to does nothing of the sort - it punts the issue to the SEC for further study. He says he wants the SEC "to adopt new rules to ensure that auditors will be independent," but he refrains from supporting a bill currently on the Senate floor (the Sarbanes bill) that would do this by separating auditing and consulting and rotating auditors.
Bush also praises the House for passing pension reforms that will "expand workers' access to sound investment advice, and allow them to diversify out of company stock." But that bill requires workers to wait 3 years to diversify out of company stock - far too long when executives can sell whenever they want. Bush says, "what's fair for the workers is fair for the bosses." Funny, the House Republican bill that he praises actually would remove a provision that requires employers to offer the same plan to all employees.
Many of Bush's proposals are articulated in vague language that would probably be subject to much interpretation. For instance, the Bush plan would: "require corporate leaders to tell the public promptly whenever they buy or sell company stock for personal gain." But what does he mean by "promptly" - waiting 34 weeks?
What Bush Didn't Say
What's more telling are the things that Bush leaves out. For example, he says that an executive "whose compensation is tied to his company's performance makes more money when his company does well; that's fine. And that's fair when the accounting is above-board."
But although Bush says he wants the issuance of options approved by shareholders, he doesn't say he wants them expensed. Allowing stock options not to be expensed essentially means allowing companies to continue issuing stock options to top executives without telling investors of the cost, cutting into profits to enrich the top brass while diluting shareholder value. Stock options are what many business analysts say is the key motivator behind all sorts of executive end-of-quarter accounting shenanigans, which were intended to raise stock value so they could cash in. It seems Bush missed the most obvious thing that needs to be addressed.
Bush also offers no support for corporate whistleblower protections, a valuable tool to prevent corporate crime, even though such provisions have strong support in Congress. He also failed to use one of the greatest deterrents against corporate crime within his power: debarment. The federal government could and should refuse to do business with companies that are serious and/or repeat lawbreakers.
The President says, "I challenge every CEO in America to describe in the company's annual report - prominently, and in plain English - details of his or her compensation package, including salary and bonus and benefits." Sure, he challenges. How about requiring? Why not go a step further and place a cap on the ratio of CEO pay to entry-level pay to ensure CEO pay doesn't get even more out of hand? The average CEO is paid 531 times the pay of the average worker. If the minimum wage had risen between 1990 and 2000 at the same rate as the rise in CEO pay, it would now stand at $25.20/hr.
Bush also failed to address the growing trend of companies reincorporating in offshore tax havens to cheat the US public out of tax dollars. Those companies that reincorporate in countries where corporate laws are weaker and the courts don't recognize U.S. courts, for instance, may be able to claim an exemption from new SEC rules which require CEOs to personally vouch for financial statements.
Nor does the Bush plan address the fact that some of the same companies that have been restating earnings have been committing human rights and other violations overseas. The Asia Times reported on July 10 that Xerox, the office equipment giant that said it would have to restate five years of earnings in June, is now admitting that its Indian subsidiary, Xerox ModiCorp, paid up to US$700,000 in graft to secure government contracts. That seems like a clear violation of the Foreign Corrupt Practices Act. Will Bush's new task force take this on?
Bush says that the corporate crisis was "long in the making, and only now coming to light," because he wants to shift blame to the Clinton administration. But what his "new Ethic of Corporate Responsibility" doesn't address is the fundamentalist deregulatory agenda that fed the crisis, which his own party led from Reagan through the Contract with America. In fact, both parties helped deregulate the energy sector (both still support energy deregulation) and pushed other deregulatory initiatives that proved a breeding ground for corporate malfeasance, such as the Public Securities Litigation Reform Act.
Given the number of corporate scandals that have emerged in recent months, virtually everyone now agrees that the problem is not "a few bad apples" but a broad systemic crisis. The President's long-awaited "New Ethic of Corporate Responsibility" falls far short of the fundamental corporate reforms needed.
That leaves Congress to pick up the pieces. But it's not likely that the many necessary reforms will be passed before Congress goes out of session, or that the ones that do pass will go deep enough. For that reason maybe one thing they could do before this session is over is establish a blue-ribbon commission to study the fundamental problem - excessive corporate power - and what to do about it.
For more information contact: Citizen Works, (202) 265-6164.
Charlie Cray is the director of the Campaign for Corporate Reform at Citizen Works, a Washington DC-based organization dedicated to building democracy and citizen power.
Lee Drutman is the Communications Director at Citizen Works.
- 106 Money & Politics
- 185 Corruption