There was more than a little of the surreal to President Bush's speech yesterday. It was a something like watching smut-publisher Larry Flynt lecturing on the evils of the exploitation of women, or W.C. Fields holding forth on the evils of corn-liquor.
The speech, billed as a major policy address on Bush's get-tough-on-corporate-crime agenda, came amidst days of news revelations of President's own questionable behavior as an executive of Harken Energy.
But the much-anticipated Bush proposals left most business analysts decidedly underwhelmed. If the speech had been the opening night of a Broadway play, the reviews this morning would have caused the theater to be shuttered by noon.
"Bare bones? There was not only nothing on the bones, there was nothing at all"
-- New York Attorney General, Elliot Spitzer.
"As far as I was concerned it really was as anemic as it could possibly be."
-- Lawrence Mitchell, Professor, Georgetown University, and author of "Corporate Irresponsibility."
"Bush made no mention of stock options to CEOs, even though everyone familiar with corporate governance knows it's a huge issue."
-- Jennifer Arlen, Law Professor, NY University.
The Bush Proposals
1) Create a Corporate Crime Swat Team to investigate and prosecute such crimes. What the President did not propose was any additional funding or staffing for such a task force.
2) Congress should increase from 5 to 10 years the maximum sentence for each count associated with a financial fraud. White-collar crime experts were quick to point out that well-heeled white-collar criminals have an extraordinarily strong track record of evading criminal sanctions. And, the longer the potential sentence, the more likely it becomes that they will evade it. With access to expert lawyers and with jurors historically reluctant to send well-dressed businessmen to prison, prosecutors generally negotiate sentences that involve fines, restitution, and probation rather than risk losing in court.
3) There should be a law criminalizing document destruction.
Hello George. There is already such a law. It's called "obstruction of justice." Your Department of Justice just convicted Arthur Andersen under that law.
4) Corporations should consider passing a rule preventing officers or directors from receiving loans from their own companies. Again, Bush was not willing to go so far as to propose anything enforceable. He simply suggested that companies might voluntarily impose such a rule on themselves. But then, there's some history on this subject too.
Bush himself received $180,000 in loans from Harken Energy during the time he served on that company's board - loans that were later "forgiven." As a board member, Bush would have had to vote to forgive those loans. In all, Harken forgave $341,000 in loans to insiders during Bush's tenure on its board. Harken's board also approved an $8 million loan to insiders to "purchase" Harken subsidiary Aloha Petroleum so the company could book a phony profit in 1989. This apparent "phantom profit" allowed Harken to report a modest loss of $3.3 million for 1989.The SEC forced Harken to restate its earnings, reporting that it had actually lost $12.6 million in 1989.
5) CEOs should explain their compensation to shareholders. Again, this would be voluntary and therefore sure to be embraced by honest CEOs and ignored or perverted by the crooked ones. What Bush did not suggest was establishing any sort of genuine linkage between the financial fate of shareholders and the company's CEO. This may also have something to do with the fact that, when he had a chance to put this in practice, he did just the opposite. Even as Harken Energy wallowed in red ink, Bush's annual compensation increased by over 60%. Maybe the President should set an example by now voluntarily explaining to hard-hit Harken shareholders exactly what he did during those days to justify his generous compensation package.
6) Congress should appropriate more money for the Securities Exchange Commission. This one had to rankle House and Senate Democrats who have been fighting to increase the SEC's budget for the past two years, only to be blocked by the White House and House Republicans. But even this battlefield conversion fell short. Bush proposed adding only $100 million to the SEC's budget next year. Senate Democrats have been asking for at least an additional $296 million for the SEC.
7) The nation's stock exchanges should insist that the majority of corporate directors be "truly independent." Once again, Bush's instincts are to leave the care and feeding of the lambs to the lions. The stock exchanges Bush hopes will now pressure corporations to seat truly independent boards of directors are the same folks who happily ignored this long-standing rule during the 1990s. Cozy, compliant, incestuous, and lucrative boards of directors became the norm, and the New York Stock Exchange, NASDAQ, and the others thought that was just fine. NYSE even gave Martha Stewart a seat on its board of directors. Maybe it was the cookies she baked for board meetings.
Clearly, President Bush's speech yesterday fell far short of the kind of corporate governance reforms American investors had hoped for and deserve. We should not have expected otherwise from an administration in which the CEO and COO are themselves accused of the very offenses they now criticize.
Speaking of which......
Cheney Sued; Accused of $445 million Fraud
No sooner had President Bush finished his Wall Street speech than Judicial Watch, a non-profit public interest group, announced it was filing a lawsuit against Vice President Dick Cheney for his actions as CEO of Halliburton.
The Virginia-based group filed a shareholder lawsuit against Cheney and Halliburton, alleging that what amounted to a clear case of accounting fraud led to shareholder losses.
The lawsuit claims Halliburton overstated revenues by $445 million from 1999 through the end of 2001.
"Halliburton overstated profits that many American citizens relied upon. That's fraudulent security practices and it resulted in those Americans suffering huge losses," the group's suit alleged.
The obvious question now is, will some group sue President Bush and his fellow Harken directors for cooking Harken's books in 1989 with the sham sale of Aloha Petroleum?
Quote of the Day:
In the long run, there's no capitalism without conscience; there is no wealth without character.
-- President George W. Bush
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