by F. David Shelene
 

Greed & Business: Always hand in hand? 

Greedy businesses are killing our country. This isn’t to say that all businessmen are corrupt. W. G. Jurgensen, CEO of Nationwide says that integrity is important in business. He states, “No one can legislate honesty and personal integrity. Schools of business should reinforce the importance of ethics by insisting that the study of values be incorporated into the core academic curriculum.” I wholeheartedly agree! I will even go as far as to say maybe we actually should teach those things at home first, before children even get to a school of any type. Just being forced to suggest it be taught in business schools is not enough. Mr. Jurgensen sounds like an honest man, but at $2,000,000 a year, I doubt if he has any idea how it feels to loose all of your savings to corporate greed.  
 

 

Will Congress Act? 

Billions of dollars of savings had been lost in the 2000 Stock Market crash and economic recession. Much of 2001 and 2002 were marked by uproar in the media about corporate accounting scandals, pension fund fraud and investment market hyping. With investors angry and class-action lawsuits propping up all over the nation, corporations, politicians and the regulators were scared, their necks on the line. Were politicians going to do anything? 

Creators Syndicate writer Linda Chavez says of members of Congress, “Many couldn’t interpret a balance sheet if their lives depended on it.” She also says that “Stock options are a standard way of giving executives a financial stake in the decisions they make by rewarding them for helping the company grow.”

But indeed politicians are sharper than that. Mindful of midterm elections just three months away, Congress sent legislation to President Bush creating stiff penalties for corporate fraud and document shredding in hopes of easing economic jitters and restoring confidence in the markets. President Bush signed the Accounting Reform Bill on July 15^th, 2002. Congress got re-elected in late 2002 and for a while it seemed that things were going to change. 

 

The Accounting Reform Bill 

On July 15, 2002, the Senate passed S. 2673, the Public Company Accounting Reform and Investor Protection Act. Ten days later, on July 25, 2002, the Senate unanimously passed the conference report on H.R. 3763, the Corporate and Auditing Accountability Act. The President signed the bill into law on July 30, 2002. The conference report closely tracks the Senate-passed legislation, which was introduced by Senator Sarbanes and combined with legislation sponsored by Senator Leahy.  

The bill includes the following major provisions :  

1. establishes the Public Company Accounting Oversight Board to set standards for auditing public companies, inspecting accounting firms, conducting investigations into possible violations of its rules, and imposing sanctions where appropriate, subject to SEC review;
2. restricts the non-audit services a public accounting firm may provide to its public company audit clients;
3. creates criminal penalties for the failure of top corporate management to comply with the requirement that management certify the accuracy of company financial reports;
4. prohibits directors and executive officers from trading company stock during blackout periods when at least half of its plan's participants are "locked out";
5. prohibits stock analyst conflicts of interest, and requires disclosure of conflicts in research reports;
6. authorizes $776 million for the SEC in Fiscal Year 2003 to enhance its investigation and enforcement capabilities;
7. ensures that executives of U.S. companies that have moved their headquarters abroad to tax havens are held to the same financial report certification requirements as executives of U.S.-domiciled companies;
8. strengthens existing penalties for corporate crime and creates a new securities fraud felony, punishable by up to twenty-five years in prison, for any "scheme or artifice" to defraud shareholders or any attempt to defraud shareholders; and
9. creates criminal penalties for the failure of top corporate management to comply with the requirement that management certify the accuracy of company financial reports.

Too Many Secrets: Too Little Intergrity

Even with the Iraq War taking up most of the news and Bush giving tax-cuts to the nations richest, investors hoped for the best. But then things started to go bad. In mid 2003 the Press reported that the Bush Administration had shown political favoritism when dispensing government contracts to certain American corporations like Bechtel, Halliburton and SAIC. And in late 2003 the foreign press reported Dick Cheney’s alleged criminal involvement while a CEO of Halliburton. The French Courts announced they may have to indict him and any other directors of Enron who bribed foreign governments. More reports surfaced that Halliburton had overcharged the Pentagon over expenses in Iraq. All hope for justice began to fade.  

 

Leave it to the Legislators?

With so many cracks in the barrel citizens must learn to voice their opinions louder on political issues, namely those that might hurt politicians and thus on laws that might never get enforced. As such here are some of my suggestions on how to enforce the Accounting Reform Bill. 

 

Criminals:  All Aboard!

Most companies have learnt if they want their computer networks secure; they get someone who knows how to hack in, to tell them how to stop it. It’s a shame to say it, but our SEC needs the same type of people. The best type of person to use to catch any complicated crime is a person who knows how to commit that crime. Accountants for e.g. know how to juggle numbers around. Only someone with the same type of knowledge can police those accountants, and the executives that are forwarding the numbers to them. But before that, our Congress needs to enact laws that make illegal the kind of accounting that gave the CEOs of some of our steel companies the right to rob the company, employees, retirees and investors. Then we need new guidelines on what corporations have to report and how to report this. Laws should be placed upon accounting firms. We can’t have the fox guarding the chicken coup any more.  

 

Adequately Staff SEC

 
We must also make sure the overseeing agencies we have now staff enough people to do the job they have been entrusted with. It’s an old administration trick to under-staff an agency that enforces laws that are unpopular with politicians. The SEC enforcement chief William McLucas has said, “If you went to court against every late filing with us, we would be in court on 2000 cases.” Maybe late filings aren’t a big problem until you find that the reason for filing late was to conceal millions of dollars in intentional disclosures that are false. If we don’t employ enough people in our oversight agencies to accomplish their jobs, it doesn’t matter what the law says. It will never be enforced. 

Punishment proportional to Crime

The penalties must be harsh as the crime. When you have taken someone’s entire retirement income, how harsh should the penalty be? If a person robs someone in his or her home, and takes his or her entire savings, it’s a serious crime. If you do that to hundreds or thousands of people, it’s a much larger crime, or it should be. The penalties need to reflect that. In fact, if it is a concerted effort by many in the corporation and accounting firm, the RICO act should be used. A racket is described in Webster’s as “a fraudulent scheme, enterprise, or activity.” A racketeer is described as one who obtains money by an illegal enterprise. The RICO act provides very stiff penalties for racketeers. If the penalties are great enough, most will think twice before engaging in illegal activity. 

Employment & Benefits Laws for Private Companies

What about private firms -- those that have employees depending on them for a living and retirement? Many private firms have thousands of employees. We must make sure laws are adequate to make private companies accountable too. These firms do not have near the investors of a public firm, but that doesn’t mean millions of peoples lives don’t depend on them. If a private firm goes belly up, many times it doesn’t even make the headlines.  

Conclusion 

Every day we wake up to news of another company whose accounting practices have been shady. Big business guardian Texas Senator Phil Gramm said when addressing a question on the problem of accounting fraud that the “the feeding frenzy is pretty much over”. I fear he may be right. The feeding frenzy is over and it looks like investors are getting nothing to chew on.  It is time for investors and employees to unite in vigilance of the Financial Markets. Powerful people are going to act like powerful people, and greed is a great motivator. 

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