Given the number of corporate scandals that have emerged recently, it has become more and more apparent that the problem isn't "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 to protect workers, consumers and shareholders.
Bush included some good incremental reforms related to corporate governance and reporting, such as prohibiting company loans to executives. But most of the proposed reforms are the kind of false posturing that corporate America has proven so capable of in recent years.
Take, for example, Bush's cornerstone 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.
Or take Bush's call to increase the SEC's budget by $100 million; a pittance compared to what SEC observers say is needed. Just two weeks ago, the House voted 422-4 to increase the SEC's grossly underfunded $430 million budget by 77 percent. 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 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 three 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." But 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 be subject to much interpretation. For instance, the Bush plan includes: "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" - perhaps waiting 34 weeks, as he did when he sold his Harken stock?
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.
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." How about requiring it? 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 per hour.
Bush also failed to address the growing trend of companies reincorporating in offshore tax havens to cheat the US out of tax dollars. Companies that reincorporate to offshore tax havens where corporate laws are weaker and the courts don't recognize judgments from US courts, for instance, may be able to claim an exemption from new SEC rules that require CEOs to personally vouch for financial statements.
Bush says that the corporate crisis was "long in the making, and only now coming to light," because he wants to blame Clinton. But his "new Ethic of Corporate Responsibility" doesn't address the fundamentalist deregulatory agenda that led to the crisis, which his own party championed 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.
Charlie Cray is director of the Campaign for Corporate Reform at Citizen Works in Washington, DC. Lee Drutman is the Communications Director for Citizen Works www.citizenworks.org.