Important Corporate Reform Proposals - Details

Enforce existing laws and punish corporate lawbreakers:

1. Expand the budget and the staff for prosecuting white-collar crime. President Bush has proposed a new task force without proposing any new staff or funding. This, after he took federal prosecutors off the corporate crime beat to fight his "war on terrorism."

2. Actively enforce the 1934 Securities Exchange Act, which contains several securities fraud provisions, including prohibitions on insider trading and nondisclosure. Many of the actions committed by Enron, WorldCom and Tyco are already illegal under the Securities Exchange Act. Between 1992 and 2001, the SEC has referred to U.S. Attorneys for criminal charges only 609 cases. Of these, U.S. attorneys have prosecuted only 187, of these, 142 were found guilty and only 87 went to jail. See the Transactional Records Access Clearinghouse as quoted in "The Odds Against Doing Time," Fortune magazine, March 18, 72.

3. Give corporate criminals real jail time. According to Fortune magazine, the few Savings & Loans crooks who went to prison got an average of 36.4 months. Car thieves who went to prison average 38 months. Burglers convicted for swiping about $300 or less average 55.6 months. See Clifton Leaf, "Send Them to Jail," Fortune magazine, March 18, 2002, page 76.

4. Revoke professional licenses for lawyers and accountants who aid in fraud. For more information see "Who's Watching The Watchdogs? In The Wake of Enron: A Survey of State Accounting Board Membership and the Need for Reform," U.S. PIRG, June 27, 2002. Available at http://www.enronwatchdog.org. Also see "Where were the Lawyers?: Behind the Curtain Wearing their Magic Caps," Testimony of Susan P. Koniak, Professor of Law, Boston University School of Law, Before the Senate Judiciary Committee, February 6, 2002.

5. Ban firms that commit fraud from receiving government contracts. The federal government should refuse to do business with companies that are serious and/or repeat law breakers, as well as deny other privileges (for example, granting broadcasting licenses) to corporate criminals. This would involve some new or strengthened laws and regulations, as well more stringent enforcement of debarment, contractor responsibility and good character laws now on the books. States and local governments should adopt similar measures. For more information, read about the anti-scofflaw regulation introduced during the Clinton administration.

6. Expand SEC disclosure standards to include environmental and social issues. Environmental and social issues dramatically affect the bottom line. The negative impacts include hundreds of billions of dollars in hidden liabilities. Asbestos, for instance caused at least $200 billion in liability -- a loss on the same scale as the amount of money lost by investors when Enron collapsed. Corporate lawyers and accountants currently use legal and accounting devices to hide environmental and social liabilities - uncertainty, legal ambiguity and the lack of SEC enforcement - to conceal environmental and social issues from investors. For more information see the Corporate Sunshine Working Group.

7. Double the Securities and Exchange Commission's (SEC) present budget of about $467 million for 2003. President Bush's proposed $100 million increase in the SEC's 2003 budget is woefully inadequate, given the SEC's responsibility to investigate the many "bad apples" in the corporate bushel and in light of a longstanding need to increase the Agency's budget to reflect its growing responsibilities and high staff turnover/low pay rates. An overwhelming majority from both parties in Congress voted for a 75% increase in the SEC's budget before Bush made his proposal. Meanwhile, a March, 2002 Government Accounting Office (GAO) report to Congress on SEC operations reported that critical SEC regulatory and enforcement activities suffer from limited resources and staffing in the face of increased responsibilities. "[T]hese delays have resulted in foregone revenue and have hampered market innovation," the GAO concluded. See "SEC Operations: Increased Workload Creates Challenges," GAO-02-302.

Improve corporate governance and strengthen shareholder rights:

1. Make sure that independent boards are actually “independent” and not merely shills for management by creating tough standards for independence, including staff support and shareholder approval of their remuneration. See the New York Stock Exchange's Corporate Governance proposals.

2. Allow cumulative voting for shareholder resolutions and corporate board elections.

3. Hold boards of directors more accountable for malfeasance and misfeasance.

4. Ban all loans to company insiders. An amendment to Senator Sarbanes' accounting reform bill (S. 2673) introduced by Senator Charles Schumer (D-HY) would ban companies from making personal loans to top executives. President Bush has also supported such a ban (even though he took such a loan while at Harken Energy).

5. Require that investors are given sufficient governance rights and remedies to assure that they control the corporations that they own. See The Corporate Library and our links page for more information on investor rights.

Pass new legislation:

1. Create a commission for the study of corporate power, modeled on the Temporary National Economic Committee of 1938-1941. Rep. Richard Gephardt (D-Mo.) has called for the creation of a national commission for corporate reform. See Business Week online, July 8, 2002. Gephardt: "A Legitimate Election Issue."

2. Establish full federal funding of elections to remove the corrupting influence of corporate cash once and for all. For state-level public campaign funding initiatives see Public Campaign. For Federal campaign finance information see the Alliance for Better Campaigns, http://freeairtime.org/ and http://www.citizen.org/.

3. Repeal the laws that shield lawyers, accountants and bankers from being sued for collusion in securities fraud and other corporate crimes. Two bills passed by Congress in the mid-1990s - the Private Securities Litigation Reform Act of 1995 ("PSLRA") and the Securities Litigation Uniform Standards Act of 1998 ("SLUSA") - severely reduce the rights of shareholders and other from attempting to recover their losses from corporate wrongdoers and their co-conspirators, especially accountants and lawyers. This has led to situations like Enron, where the risk of liability is far outweighed by the possible financial gains of the wrongdoing. These bills erected numerous hurdles for victims of financial crimes who are seeking to recover their losses. The PSLRA - enacted over President Clinton's veto (with support from members of both parties) - makes it far more difficult for victims to get into court, to maintain a case once there and to collect a meaningful percentage of their losses even if they win. The SLUSA forces almost all small investors to take their cases to federal court, where they must sue under the draconian terms of the PSLRA, instead of the often more investor-friendly laws of their own states.

4. Enact legislation to establish Financial Consumer Associations, state-chartered, nonprofit organizations with fulltime staffs that can help consumers band together to serve as watchdogs on financial issues, such as securities fraud. These financial consumer watchdog groups can be modeled after organizations such as the Citizens Utility Board in Illinois. The proposal to introduce a financial consumer watchdog group was first introduced in the 1980s by then Representative Charles Schumer. You can read the text of a model FCA establishment law at the Center for Study of Responsive Law.

5. Create a Federal Bureau of Audits, an independent agency responsible for overseeing and regulating the accounting industry. In addition, auditors should be forbidden from providing any non-audit services such as consulting to the same clients. Auditors should be rotated every few years. These proposals were originally contained in H.R. 3795, sponsored by Rep. Dennis Kucinich (D-OH). They were rejected as an amendment to the House accounting reform bill, sponsored by Rep. Oxley (R-OH). While better than the House (Oxley) bill, the Senate bill does not make these reforms clear or impervious to industry manipulation. The Senate accounting reform bill requires rotation of audit partners, but does not require rotation of firms, which is a key factor in ensuring the independence of the audit and the veracity of statements. The Senate bill's prohibition on non-audit services relies entirely on how the SEC would interpret these vague restrictions. And the independence of the auditor oversight board is in serious doubt under the terms of the Senate bill. For more information contact the Consumer Federation of America.

6. Close the loophole that allows corporations to avoid paying U.S. taxes by reincorporating in an offshore tax haven; or at least ban those who do it from getting government contracts. For more information, see the Citizen Works' Corporate Tax Traitors web page.

7. Mandate strict separation between investment banking, insurance, and investment advice. 47 of the 50 top investment brokerage firms covering companies that went bankrupt in the first four months of 2002 advised investors to "buy" or "hold" shares in failing companies even as they were filing for Chapter 11. See Martin D. Weiss, Ph. D., "Crisis of Confidence on Wall Street," June 11, 2002, at http://www.weissratings.com.

8. Provide real pension protection for workers by limiting company stock in 401(k) plans, giving employees honest investment advice and a voice on the pension board, and making employers directly liable when they defraud employees. For more information, contact the Pension Rights Center, (202) 296-3776.

9. Expand corporate whistleblower protections so that the employees who observe wrongdoing firsthand aren't penalized for doing the right thing and reporting wrongdoing to the authorities. For more information see the Government Accountability Project, Project on Government Oversight, or The National Whistleblower Center.

10. Close the revolving door between business and government. Corporate executives, lawyers and accountants should not be allowed to move directly from their business positions into government offices where they oversee the activities of the companies they once worked for. It is not enough to exercise conflict-of-interest rules under which officials recuse themselves from involving themselves in government activities involving their former employers and clients. Too often government officials don't recuse themselves from decisions that affect their former industry friends, and even when they do, it can diminish the capacity of government regulatory agencies (Harvey Pitt has had to recuse himself 29 times from SEC decisions that came before the Commissioners). In addition, the "cooling off" period is usually not long enough. SEC Chairman Harvey Pitt who, before joining the Administration was a Wall Street lawyer representing investment banks, stock exchanges and all the big accounting firms said on July 19 that he does not intend to automatically excuse himself from cases involving his former clients once the one-year period requiring such a step expires in August of 2002.

11. Expand the scope of the False Claims Act to provide "bounty provisions" for whistleblowers and watchdogs who unearth corporate financial crimes, as well as environmental, worker rights, and other violations.

12. Make CEOs personally liable for financial fraud and require CEOs to sign off on all corporate financial statements.

13. Make meaningful cuts in corporate welfare, including eliminating the Overseas Private Investment Corporation (OPIC). To expand its international operations, Enron Corp. received over $7 billion in government assistance from the U.S. Overseas Private Investment Corporation [OPIC] and other public sources, including the World Bank and other multilateral financial institutions. See "Enron's Pawns," Sustainable Energy & Economy Network, 2002. For more information about corporate welfare see Ralph Nader, Cutting Corporate Welfare, Seven Stories Press, New York, 2000.

14. Strengthen the Foreign Corrupt Practices Act to prosecute U.S. companies and their subsidiaries that bribe public officials in other countries. A number of companies under investigation for accounting fraud are also under investigation for bribing officials in other countries - notably Tyco and Xerox. Not only does the Justice Department need to step up investigations of these activities, but the law itself needs to be strengthened because of a recent court decision which made it legal for an executive from a U.S company to bribe a foreign official to reduce the company's tax burden or customs duties in that country. (For more information see the articles and reports related to the Foreign Corrupt Practices Act on our links page.)

15. Place a cap on the ratio of CEO pay to entry-level pay. Place a cap on the ratio of CEO pay to entry-level pay. If the minimum wage had risen at the same rate that CEO pay rose between 1990 and 2000, it would be $25.20. Management guru Peter F. Drucker has warned since the 1980s that the growing pay gap between CEOs and workers threatens the credibility of leadership and that no leader should earn more than 20 times the company’s lowest-paid employee. Even finance magnate J.P. Morgan espoused the opinion that CEOs should not make more than 20 times the compensation of the average employee. (Rep. Sabo has introduced a related bill -- H.R. 2691, “The Income Equity Act of 2001," which recommends that no tax deductions should be given for salaries above a 25 to one ratio). For more information see Institute for Policy Studies and United for a Fair Economy, "Executive Excess 2001," (Eighth Annual CEO Compensation Survey), August 2001. For information about specific CEO pay see the AFL-CIO's Executive Paywatch; for general information see United for a Fair Economy and Jobs With Justice.

16. Eliminate the double standard for stock options, whereby companies can get a tax write-off for stock options without having to list it as an expense on their financial statements. Coca-Cola and the Washington Post Corporation announced in July, 2002 that they would expense options, as has been proposed by Senator McCain (R-AZ), Federal Reserve Chairman Alan Greenspan and Berkshire Hathaway CEO Warren Buffet. Senator McCain offered an amendment to Senator Sarbanes' (D-MD) accounting reform bill (S. 2673) that would have called on companies to record stock options as an expense. Sen. Carl Levin (D-MI) offered an amendment to call the Financial Accounting Standards Board to study expensing stock options. Both amendments were blocked.

17. Require day-of disclosure for all executive stock sales. See the "Insider Trading Disclosure Act," H.R. 3769, sponsored by Rep. Bentsen (D-TX).

18. Roll back the devastating effects of electricity deregulation by amending the Federal Power Act, forcing the Federal Energy Regulatory Commission (FERC) to revoke market-based rates and order cost-based pricing in all wholesale electricity markets. Strengthen the regulatory and enforcement power of the Securities and Exchange Commission (SEC) by extending jurisdiction over electric power marketers. For more information see Public Citizen's Critical Mass Energy and Environment Program and the Foundation for Taxpayer and Consumer Rights.

19. Regulate the trading of derivatives, including energy futures. For more information on derivatives and how they should be regulated, see the Derivatives Study Center.

20. Repeal the Taft-Hartley Act that unfairly obstructs tens of millions of American workers in companies like Wal-Mart from organizing trade unions to bargain for living wages. For more information see Ralph Nader, In the Public Interest (column), July 18, 2002.

21. Pass the Code for Corporate Citizenship in all 50 states. State laws allow corporations to externalize costs, minimally comply with the law, lobby to weaken laws, shop for jurisdictions with lenient laws, and do significant damage to the enviroment, human rights, public health and safety, employee dignity and the welfare of surrounding communities. The Code For Corporate Citizenship would change corporate law to ensure that the public's interest is not sacrificed for corporate profit. Grassroots organizers should be able to use the code to force corporations to reduce their pollution and violations of human rights, improve public health and safety, and spur corporate management to respect employees' dignity. Corporate employees should be able to use the code to unleash themselves from the tyranny of the bottom line. For more information about the Code for Corporate Citizenship, see http://www.citizenworks.org/enron/corp_code.php.

And finally and importantly:

1. Amend the Constitution to define only people as “persons,” preventing powerful corporations (“artificial persons”), already given privileges and immunities denied human beings, from usurping rights designed to protect natural human beings. Because U.S. courts have not made the distinction between natural "persons" and artificial "persons" more commonly known as corporations, the latter have been able to exercise rights originally intended exclusively for real people. Corporations have used the right to free speech, for instance, to defend political advertising campaigns. Large chain stores have invoked their 14th Amendment personal liberty rights -- the same amendment that freed the slaves -- to stop state and local governments from favoring local businesses over corporate chains. Corporations, using Fourth Amendment search-and-seizure statutes the framers of the Constitution originally reserved for private citizens, have also successfully argued against surprise inspections under the Occupational Health and Safety Act. For more information see the Program on Corporations, Law and Democracy and the Campaign to Abolish Corporate Personhood at the Women's International League for Peace and Freedom.