Nothing could be sadder--or funnier (you choose)--than watching President Bush give a speech, and then immediately watch the stock market take a historic dive.
George Bush would have served everyone better if he had kept his mouth shut about corporate responsibility and let Congress do its work. The main problem, of course, is his own lack of credibility on the subject.
In the 1980s, Bush sat on the board of Harken Energy Co. when it improperly booked the revenue from a sale made to a group of its own insiders. The Securities and Exchange Commission investigated and made the company restate its finances. (Does this sound like Enron?) And Bush can't claim to have been misled about it all--he sat on a three-person audit committee at Harken that approved the deal.
Then there's the insider trading rap. George Bush sold $800,000 worth of stock in Harken just before the company declared a loss and its stock price plunged. Sound like Enron executives? It turns out that the president of Harken sent a letter to all three members of the audit committee--Bush included--just four days before Bush sold his stock. The letter discussed Harken's cash flow problems and troubles with its creditors. Bush simply can't claim he didn't know the company was having a bad quarter.
Then we find out that Bush got a couple of cheap loans from Harken that allowed him to buy his Harken stock in the first place. Sound like Worldcom?
Yes, Bush is as filthy as Kenneth Lay or Bernard Ebbers. And when he was pressed by journalists to explain his Harken Energy dealings, Bush said: "Sometimes things aren't exactly black and white when it comes to accounting procedures."
No kidding. In that one statement, Bush explained what's wrong with our system, while simultaneously confirming that he's part of the problem.
Investors--large, institutional investors as well as ordinary, 401(k) plan savers like me--watched the Bush speech and waited for him to say something of substance, to give his plan for how to clean up the system. We waited in vain.
He suggested doubling the criminal sentences for company executives caught committing fraud. That's fine--except, we all know that nobody is ever prosecuted for fraud. Who, after all, is willing to testify against the boss (and would they be believed?). Which upper management drones would be willing to turn in the CEO when they themselves are also complicit? We all have, fresh in our memories, the picture of Kenneth Lay and Jeffrey Skilling of Enron pleading the Fifth. And the more recent picture of Bernard Ebbers and Scott Sullivan of Worldcom pleading the Fifth. With no evidence and no witnesses to testify about who knew what and when, there's no prosecution possible.
Bush suggested preventing corporate officers from receiving loans from their companies. Nice try, but it would seem more heartfelt if he hadn't already availed himself of this perk at Harken.
He suggested full disclosure of CEO compensation. Uh, excuse me, Jr., but that's already an SEC requirement. If he had said separate disclosure, that would have made sense. Currently CEO compensation is buried within the volumes of paper companies file with the SEC every year.
Bush proposed barring members of the board of directors from having a financial stake in the company. That's laughable. Currently, the only way companies can attract people to sit on their boards is to offer them a financial stake. Otherwise, people would find more important--and more profitable--things to do with their time.
As for enforcement, he offered to beef up the SEC with a measly $20 million. The SEC is woefully understaffed and underfunded--a legacy of the Reagen years that has continued to today. But even so, it's budget is $700 million. An extra $20 million will do little to help the SEC review the highly technical and detailed financial statements filed by over 900 publicly-traded corporations approximately every three months.
Finally, Bush said he would create a new taskforce within the Justice Department to focus on financial crimes. As a show of his sincerity, he appointed as head of the taskforce a man who has worked as a defense lawyer for corporate criminals, including Enron, and who sat on the board of a credit card company, Providian, when it was forced to settle a $400 million lawsuit for fraud.
More importantly, Bush didn't talk about the things that we needed to hear.
For example: companies could be forced to take stock options as an expense on their books instead of treating them as freebies. Companies could be forced to limit executive compensation and bar corporate officers from receiving stock options. (This, after all, is the reason for the fraud in the first place: executives who have a major financial stake in their companies will do anything, including fraud, to boost the stock price.) Instead of a wimpy taskforce in the Justice Department--which is already swamped with sniffing out terrorists on ferry boats, in mosques, and in any public gathering of 3 or more people--Bush could create a new agency to oversee the accounting industry and/or undertake a revision of our vague and out-of-date accounting rules system.
But, just as we know that Bush has benefitted from the corrupt system as it exists now, we also know that he's not interested in deep change. Only the "image" will be changed in the hopes of restoring elusive, intangible "investor confidence."
are real people who've seen their earnings disappear, and with
them, the very real hopes of a decent retirement, college savings
for their kids, vacation money, down payments for homes, and,
for retirees, money to pay their bills right now. "Image"
is just not enough.