Tools to Fight Corporate Misconduct
By Sen. Joe Lieberman
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In too many realms of American life, we've seen a dangerous drift away from fundamental values of honesty, equity, and charity toward a single-minded devotion to maximizing profit. We've seen it in Hollywood, where higher ticket counts are used to rationalize mounting body counts. We've seen it in Washington, where the big money raised from a small number of well-connected donors has too often eclipsed the critical concerns of millions of average Americans. In too many cases, the bottom line has become the only line we're willing to draw. If it's legal and makes money, then we say it's okay, even when we know it's wrong.
That's wrong. Markets are amoral by nature. They have tremendous power to maximize efficiency, variety, and quality and to minimize price -- but market values do not inherently incorporate moral values. As we saw with Enron -- a company that literally built part of its false fortune on valueless markets -- the drive for earnings, unchecked by other values, usually ends in disaster.
In Washington, some legislators are eager for government to assume total responsibility for heading off every market failure. Others insist that capitalism has worked as intended in Enron's case and that government has no meaningful new role to play here.
They're both wrong. Those who idealize the government's role and suggest heaping so many new regulations on businesses may stifle the American spirit of enterprise. Those who idealize the market's self-corrective powers don't see the size of the scar or the powerful temptation to return to business as it was before. The Enron scandal cries out for governmental action, but we must acknowledge before we act that there are twin dangers -- of doing too little and doing too much.
Government has to develop better tools to fight corporate misconduct. What makes Enron's collapse so noxious at the core is that those who broke the rules and shredded their side of the social contract made out like, well, bandits, while those who played fairly lost everything. We can't allow this episode to add to the long list of cases in which white-collar criminals are treated with kid gloves. We must make clear to corporate America that the same law will govern the chief executive officer and the mail-room worker, and that it will be enforced with equal vigor for all. Whatever the color of your collar, if you break the law, you'll go to jail.
We also need to ensure that the members of boards of directors truly uphold their fiduciary responsibilities. Serving on a board is a job, not a reward. When board members consistently fail to satisfy their fiduciary responsibility to shareholders, the Securities and Exchange Commission should have new disciplinary powers to remove them from any and all boards on which they serve.
We need to increase the independence of Wall Street analysts, whose incentives too often seem to make them into stock salespeople rather than stock watchers. We need to ensure that credit rating companies are using the inside information they have access to more aggressively to anticipate and protect the markets, not just react to them. And we have to curtail the non-audit work that accounting firms can do for the companies they audit, and create a strong and independent disciplinary body to oversee this critically important but currently tarnished profession.
People who have 401(k) plans deserve more control over their money and more freedom to buy and sell their stocks. They shouldn't be locked in by age restrictions or other unnecessary barriers while highly compensated executives are free to sell their stock whenever they see fit.
All these measures will help restore public trust in the markets. But we need to do more. A task force on corporate policy could help shape the new standards for auditing and corporate governance, help craft new rules for analysts and credit agencies, and offer non-partisan input. It would also allow a group of our most successful business leaders to remind us from within that just as man does not live by bread alone, so too do corporations not survive by profit alone.
Enron also clearly demonstrated that a corporation's culture can be at least half the problem. That's why I challenge companies -- especially large, multi-national enterprises -- to work hard every day to create cultures with clear chains of command and shared responsibility for important decisions. Checks and balances need to be strong enough to assess the ethical consequences of corporate action on an ongoing basis -- not just after a big mistake has been made. Post-Enron, the American people won't tolerate another maddening, passive, amoral maze of finger-pointing and blame-shifting when everyone can see something went terribly wrong.
Ultimately, the Enron scandal reminds us that whatever we do in life, there will always be a place and a space where human conscience alone must guide our actions, when we have to make a choice, in the privacy of our personal lives, between right and wrong.
Sen. Joe Lieberman (D-Conn.) is chair of the Governmental Affairs Committee and a senior member of the Armed Services Committee.