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Recipes for Reform
ROLL BACK THE TIDE OF DEREGULATION
REDUCE EXCESSIVE CORPORATE POWER AND INFLUENCE OVER GOVERNMENT
Force corporate crooks to pay it back The Problem: Greedy executives have mastered the game of enriching themselves with little regard for the long-term viability of their companies, the interests of shareholders, employees, and other affected stakeholders. Executives and directors fudge profits, hide debt, and make misleading predictions, all of which cause the stock to rise so that they can cash out on their massive stock options. This leaves ordinary investors and workers, who have no knowledge of these shenanigans, to suffer tremendous losses when the stock inevitably tumbles and the company falls apart. Recipes for Reform:
Toughen the punishments for corporate crooks and crooked corporations The Problem: A double standard plagues our criminal justice system. Burglars and car thieves and drug users typically are aggressively prosecuted and typically serve several dozen months in jail. Corporate criminals, who play fast and loose with the retirement savings and the jobs of hundreds of thousands, are rarely brought to trial and even more rarely convicted. Individuals convicted of criminal activity can have their rights taken away from them and often have difficulties getting a job. Corporations with repeated criminal activity suffer no such difficulties, not even when it comes to getting government contracts. Both the Department of Justice and the Securities and Exchange Commission are woefully underfunded and unfocused when it comes to unraveling complicated corporate crime, but plenty of resources are devoted to street crime. Recipes for Reform:
Punish all the participants in corporate fraud, not just the CEOs The Problem: It takes more than just a corrupt CEO and a few cronies to make corporate fraud a reality. Accountants oftenlook the other way when they see questionable accounting practices. As seen in the case of Enron, bankers are often complicit and compromised by extensive conflicts of interest. Finally, there are the corporate lawyers, who not only ignore fraud but sometimes even help design and perpetuate the fraud by issuing supportive opinions, writing and reviewing SEC filings, and helping executives set up various entities designed to hide debt and inflate profits. These supporting actors have been emboldened by a series of laws passed in the '90s that severely limited their liability in financial fraud. Recipes for Reform:
Track the cost and extent of corporate crime Problem: In order to deal appropriately with corporate crime, it would be quite helpful to understand its extent and adequately analyze any emerging trends. Under current law, however, the government does not track white-collar crime. The FBI's Uniform Crime Report focuses only on street crime, even though white-collar crime annually costs Americans an estimated 20 times more than all the combined thefts included in the Uniform Crime Report. Recipes for Reform:
Crack down on international corporate bribery The Problem: When it comes to conducting international business, U.S. companies regularly engage in all sorts of bribery in order to win government contracts. Enron, for example, is accused of bribing government officials to gain a contract to build a power plant in Dahbol, India. The Foreign Corrupt Practices Act (FCPA) made this behavior illegal in 1977, but the law was weakened in 1988 to allow for "grease payment exemptions." Even between 1977 and 1988, the government rarely used the FCPA, initiating only 23 anti-bribery cases. Recipes for Reform:
PROTECT WORKERS AND INVESTORS Strengthen pension protections for workers The Problem: Most corporations once took care of their workers after they retired, providing them with regular pension payments in the form of defined benefits. In the last two decades, the responsibility has shifted to the employees, who must now plan their retirements individually by navigating the turbulent stock market through defined contribution plans. Often, employees are encouraged to place a majority of their retirement portfolio in company stock, violating the first rule of smart investing - diversification. Recipes for Reform:
For more information, contact the Pension Rights Center. Expand whistleblower protections The Problem: Company employees are the first line of defense against corporate crime. But few of them "blow the whistle" and report wrongdoing because they know that to do so would be to jeopardize their jobs and often their careers. That is because up until the Sarbanes-Oxley act, whistleblowers had little protection against retaliation. Whistleblowers still need more protections, since the Sarbanes-Oxley accounting reform act only practices whistleblowers who report fraud against shareholders. Recipes for Reform:
Empower the real corporate owners - the shareholders The Problem: Shareholders own the corporations, but they don't control them. There are an estimated 88 million shareholders in this country, but they form a diffuse group that doesn't take advantage of its power. Instead, management picks its own board of directors, votes itself all kinds of pay raises, and runs the corporation with no notion of accountability to its real owners. Recipes for Reform:
Curb excessive executive pay The Problem: In 1982, CEOs made 42 times what the average worker made. Now they make 411 times that. Executive compensation has long ceased to be a reward for performance. Instead, it has become an out-of-control epidemic that drains companies of capital and threatens the legitimacy of the entire corporate structure, going far beyond suggestions by J.P. Morgan and mangement guru Peter F. Drucker that CEO pay should be no more than 20 times the average employee. Even executives who are fired or lead their companies into bankruptcy have received excessive compensation and/or severance packages. Recipes for Reform:
For more information see United for a Fair Economy at www.ufenet.org and AFL-CIO paywatch at www.afl-cio.org. Expand disclosure standards The Problem: Corporations have a tendency to hide any information that they think reflects poorly on them, be it potential environmental liabilities, safety violations, or staggering debt. Such hidden information prevents markets from working fairly and effectively, benefiting insiders who know about company problems while handicapping otherwise ignorant investors. Investors also have a right to know what kind of company they are investing in. Recipes for Reform:
Stop corporate tax traitors The Problem: A growing number of corporations have discovered a very simple way to save tens of millions of dollars in annual tax returns - they reincorporate in an offshore tax haven without actually moving any operations offshore. All it takes is a post office box and some paperwork. These companies, however, still benefit from government services that the taxes of others continue to finance, such as law enforcement, national security, and most notably, government contracts. These moves also have an adverse affect on shareholders, who have far fewer rights in offshore tax havens and also must sell their shares upon reincorporation, creating unwanted capital gains taxes. Recipes for Reform:
ROLL BACK THE TIDE OF DEREGULATION Reverse Electricity Deregulation The Problem: The combination of deregulated state wholesale electricity markets, federal deregulation of commodity exchanges, and the gutting of a New Deal-era utility law -- the Public Utility Holding Company Act - have removed accountability and transparency from the energy sector and left electricity consumers at the whim of greedy profiteers. California's recent energy crisis, which cost ratepayers an estimated $70 billion, would have been impossible under a regulated system. Recipes for Reform:
Fore more information see Public Citizen's Critical Mass Energy Project at www.citizen.org/cmep/ , Restore Just Rates at www.restorejustrates.org and Local Power at http://www.local.org/ Regulate Derivatives Trading The Problem: Derivatives are financial contracts where a seller and a buyer agree to exchange a certain commodity for a certain price at some point in the future. Derivatives are useful to reduce risk for those who produce commodities, such as a farmer who agrees to a guaranteed price for his corn at the beginning of the season to make sure he gets something. However, when derivatives get in the hands of speculators, such as Enron, there is often a tendency for reckless financial behavior, since unlike stocks, derivatives are not regulated and require no margin or collateral requirements. Derivatives can also be used to avoid taxation and manipulate accounting rules by restructuring the flow of payments so that earnings are reported in one period instead of another. By specializing in derivatives, Enron basically operated as an unregulated financial institution. Recipe for Reform:
End the conflicts of interest on Wall Street The Problem: During the stock market boom, Wall Street investment analysts regularly recommended stocks in companies that they internally labeled as "crap." The reason they did so was because the investment banks where the analysts worked were conducting millions of dollars worth of business with these same "crap' companies, and a favorable stock rating would generate even more business. According to Weiss Ratings, 47 of the 50 large brokerage firms covering companies that went bankrupt in the first four months of 2002 continued to recommend investors buy or hold shares in the companies, even as they were filing for bankruptcy. As a result, investors lost trillions of dollars. Recipe for Reform:
REDUCE EXCESSIVE CORPORATE POWER AND INFLUENCE OVER GOVERNMENT Cut corporate welfare The Problem: Corporations receive countless taxpayer subsidies and bailouts, essentially transferring public money into private enterprise with little to no public consultation. Corporations receive natural resources from federal lands at a fraction of their value. They gain countless benefits from taxpayer-funded scientific and medical research. They utilize a wide array of federal tax loopholes, debt forgiveness, loan guarantees, discounted insurance, and other benefits. Meanwhile, they pay a decreasing percentage of federal revenue. Recipes for Reform:
Slow the Revolving Door Between Business and Government The Problem: The Bush administration is laden with former corporate executives and lawyers. For example, Securities and Exchange Commission Chairman Harvey Pitt had to recuse himself at least 29 times from SEC decisions during his first year. Unfortunately, it is far from atypical for government regulators under any administration to have deep ties with corporate interests they are supposed to objectively regulate. These deep ties make it difficult for the government to do its job effectively. Recipe for Reform:
Create a public interest counterweight to the corporate lobbyists The Problem: Corporate lobbyists representing wealthy business interests dominate Congress. There are an estimated 12,113 corporate lobbyists in Washington, dwarfing the number of public interest advocates. This means that public interest voices are often drowned out by the din of corporate lobbying. Recipe for Reform:
Get corporations out of politics The Problem: Although only people can vote, corporations use their money to wield incredible influence over electoral politics. This is because of their immense ability to fund campaigns and advertise their views on the issues. As a result, candidates must appeal to corporate interests in order to get elected and stay elected. Recipes for Reform:
Restore citizen control over corporations The Problem: For three generations after the signing of the Declaration of Independence, citizens governed corporations by setting their rules and operating conditions through both state laws and corporate charters. Corporations were chartered for a set purpose for a set number of years, and citizen governments could revoke those charters if they were displeased with the corporation's behavior. In the middle of the 19th century, the laws began to shift in favor of corporations. In the 150 years since, corporations have been greatly empowered through limited liabilities, unlimited life span and size, and other powers that have made them the masters, not the servants, of the people. Recipes for Reform:
The Problem: Over time, U.S. courts have granted corporations - once considered mere "creatures of law" -- the status of "persons" with specific constitutional rights, such as the right of speech and protection from search and seizure. Corporations have used these rights, along with their superior economic might, to dominate various political processes and shield themselves from normal government regulatory oversight. Recipe for reform:
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