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Bush:
corporate confidence man
By Charlie Cray and Lee Drutman
Reprinted from CorpWatch
Editor’s note: The following story was posted to www.corpwatch.org
July 10
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 July 9, and nine 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
percent. 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 U.S. 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
$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.
Reprinted
with permission from CorpWatch, www.corpwatch.org.
For more information contact: Citizen Works, www.citizenworks.org,
(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.
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