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The
Corporate Reform Weekly
Vol
V, #9
March 6, 2006
Lobbying
Reform
1.
Senate
committee rejects ethics oversight agency, but approves more disclosure
2.
States provide valuable lessons for federal lobbying and ethics reforms
Contractor
Accountability
3.
Senate Dems introduce contractor oversight reforms
4.
Federal investigators looking into more government contracts
Scandal
5.
More executives testify of Enron lies in Skilling/Lay trial
Executive
Compensation
6.
Shareholders trying new, less prescriptive strategies to limit executive pay
This Week’s
Action Item
Tell
your Senators: support the Honest Leadership and Accountability in Contracting
Act of 2006
Lobbying
Reform
1.
Senate
committee rejects ethics oversight agency, but approves more disclosure
Lobbying
reform came into sharper focus in the Senate last week, with some proposed
reforms moving closer to the Senate floor while one key reform failed to make
it out of committee.
The big
disappointment came on Thursday, when the Senate Homeland Security and
Governmental Affairs Committee rejected a proposal that would have created a
new independent agency to oversee congressional ethics. The proposal, sponsored
by the panel's chairwoman, Susan Collins (R-Maine), and the ranking Democrat,
Sen. Joe Lieberman (Conn.), was voted down 11-5.
Advocates
of lobbying reform had pointed out that current Congressional ethics oversight
is severely dysfunctional, and without any meaningful ethics oversight and
enforcement mechanism, it doesn’t really matter what new rules get passed if
there is no body in place to make sure the rules are actually followed.
“The cutting
out of the office of public integrity really undermines this whole
effort," said Joan Claybrook, president of Public Citizen.
"We are
really disappointed," said Mary Boyle, spokeswoman for Common Cause.
"For Congress to produce any kind of credible reform, they need an
enforcement mechanism."
Sen. Lieberman
told reporters he will try to get the integrity office approved on the Senate
floor.
The
committee did, however, approve legislation to require more detailed disclosure
of lobbying activities. Under proposed new law, lobbyists would be required to
fill out much more frequent and detailed reports of their activities and would
also have to annually report their campaign donations and all fund-raising
events they attended. The legislation would also increase the “cooling off”
period before retired senators can become lobbyists from one to two years.
Similar
legislation was approved by the Senate Rules Committee, which also tackled the
issue of “earmarking,” attempting to shed more light and limit the practice
whereby lawmakers stick funding for special projects into long bills. The Rules
Committee legislation also requires Senators to disclose more information about
privately-funded meals and travel and prohibits gift-giving by lobbyists. Any
senator who wants to accept privately-funded travel would need to get approval
from the Senate Select Committee on Ethics in advance of accepting. The
legislation was approved by the committee 17-0.
For more, see:
“Senate Panel Approves Modest Curbs on Lobbyists,” By SHERYL GAY STOLBERG
of the New York Times: http://www.nytimes.com/2006/03/01/politics/01lobby.html?_r=1&oref=slogin
“Congress
Ethics Office Rejected,” By Mary Curtius and Richard Simon
Los Angeles
Times: http://www.latimes.com/news/nationworld/nation/la-na-ethics3mar03,0,3594520.story?coll=la-home-nation
“Ethics Office
For Hill Rejected,” By Jeffrey H. Birnbaum, Washington Post Staff Writer: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/02/AR2006030202146.html
2.
States provide valuable lessons for federal lobbying and ethics reforms
While
Congress continues to discuss lobbying and ethics reform, most of the states
already have laws in place, and two reports that came out last week offer some
advice.
The
Center for Public Integrity released a report looking at lobbying disclosure
laws in all 50 states and found that 47 of those states had stronger disclosure
laws than the federal law.
Some
highlights from the Center’s report:
“While no state
earned an "A" when graded on providing the public with full
disclosure on behind-the-scenes lobbying in the 2003 survey, Washington state
had the highest score, 87 points out of a possible 100. The federal law tied
with New Hampshire, earning a failing grade of 36 — almost two and a half times
lower. Only Pennsylvania and Wyoming received worse marks.”
“Of the 24
states that made lobby law changes since the May 2003 report, 16 made
substantive changes to existing regulations. The various measures included:
requiring more frequent filings, requiring reporting of lobbying on state
contracts, requiring disclosure of executive branch lobbying, and banning
contingency fees. Seven of the remaining eight states put new electronic
disclosure systems in place, and the Hawaii Ethics Commission began posting
scanned copies of lobby disclosure filings on its Web site.”
“Georgia, New
Jersey, North Carolina and Tennessee were among the states with the
most-revised rules. In addition to other provisions, the law in each state
established a "cooling-off" period, which prohibits legislators from
registering as lobbyists for a set period of time after leaving office.
In Florida,
another state with several rule changes, a stringent ban on legislators
accepting gifts from lobbyists and a requirement that lobbyists disclose the
amount of money they make to lobby were approved. However, the Florida
Association of Professional Lobbyists and others filed a lawsuit challenging
the legislation on Feb. 17.”
For the
complete report, “24 states have made disclosure strides since 2003,”
By Leah
Rush and David Jimenez: http://www.publicintegrity.org/hiredguns/report.aspx?aid=781
The Los Angeles Times also looked at states and found “sobering
examples of how hard it is to curb political malfeasance.”
Some
highlights from the Los
Angeles Times report:
“Many states
made rule changes years ago that the House and Senate are now contemplating.
But even those that imposed the toughest restrictions and oversight continue to
grapple with problems of corruption and how to keep it in check.”
“Nearly two
dozen states, including California, have established some sort of outside
oversight of their legislatures. But it is a patchwork quilt of panels with
varying degrees of independence, authority and funding — and uneven track
records of effectiveness, proponents of changes in congressional ethics rules
acknowledge.”
“But in many
states where such panels exist, commission officials have found it hard to
guard their authority and their budgets from the legislatures they are charged
with policing.”
"What
happens in the states too often is that when the ethics commission oversees the
Legislature, and the Legislature gets mad at them, they cut their budget,"
said Peggy Kerns, director of the Center for Ethics in Government of the
National Conference of State Legislatures.
For
the complete story, see: “States
Offer Grim Look at Curbing Corruption,” By Mary Curtius of the Los Angeles
Times: http://www.latimes.com/news/nationworld/nation/la-na-ethics28feb28,1,3123014.story?coll=la-headlines-nation
Contractor
Accountability
3.
Senate Dems introduce contractor oversight reforms
Responding
to continued reports of waste, fraud, and abuse in government contracting,
especially in Iraq, Senate Democrats, led by Sen. Byron Dorgan (D-ND) last week
introduced legislation that would enact new punishments for contractor abuse
and attempt to create more competition.
“Hearings
have revealed waste, fraud and abuse on a massive scale in government
contracting,” Dorgan said. “We need to stop it. This legislation would
accomplish that by putting tough new penalties in place for war profiteers,
eliminating conflicts of interest, insisting on transparency, and putting an
end to cronyism in key government appointments relating to federal contracting
and public safety.”
“Taxpayers
deserve to know that their tax dollars will be spent wisely, not left wide open
to be snatched up by fast-buck artists with friends in high places,” Dorgan
added. “This legislation will restore integrity to a federal contracting
process that has too often failed to guarantee that taxpayers get a fair return
on the money they entrust to their government.”
Key
provisions Honest Leadership and Accountability in Contracting Act of 2006
include:
• New
penalties of up to 20 years in prison and at least $1 million in fines for war
profiteering.
•
.Restoration of a rule, dropped by the Bush Administration, that prohibits
awarding federal contracts to companies with a pattern of failing to comply
with contracting laws.
•
Establishment of a “Truth in Contracting” public website identifying
significant over-charges by major contractors.
• A
prohibition of huge monopoly contracts, in order to ensure price competition
from multiple companies.
• A
requirement that federal agencies conduct their own contract oversight, rather
than paying contractors, often with conflicts of interest, to oversee each
other.
•
Strengthening conflict of interest rules that now allow federal contracting
officials to take jobs representing companies to whom they once awarded
contracts.
•
Requiring that political appointees to key federal jobs relating to federal
contracting and public safety have credentials and experience that qualify them
for those positions.
“Federal contracting is a key
chapter in the ongoing saga of corruption that starts on K Street and
ends up undermining democracy at home and abroad,” said Charlie Cray, director
of the Center for Corporate Policy, which has been active in exposing
contractor fraud. “The abuse of U.S. taxpayers’ and Iraqi oil revenues
witnessed in recent years has undermined the Iraq reconstruction project and
put American troops at risk.”
For
more, see: “ DEMOCRATS UNVEIL NEW LEGISLATION TO REFORM GOVERNMENT
CONTRACTING,” http://democrats.senate.gov/~dpc/press/2006302508.html
4.
Federal investigators looking into more government contracts
Federal
investigators are reportedly investigating the contracting practices of the
Counterintelligence Field Activity, a new fast-growing intelligence agency,
which was created in 2002 and has since spent more than $1 billion. More than two
thirds of that money has gone to private contractors.
The
agency is of interest to investigators because prosecutors have found that
Randy “Duke” Cunningham (R-Calif.), who last week was sentenced to 8 years in
prison for taking $2.4 million in bribes and evading taxes, earmarked $6.3
million in work to “benefit CIFA.” The work was to be done by MZM Inc., the
company run by Mitchell J. Wade, who has pleaded guilty to conspiring to bribe
Cunningham.
Prosecutors
also released a letter from February, 2004, in which Cunningham thanks CIFA
Director David A. Burttt II for supporting another multimillion-dollar program
involving MZM.
For more, se:
“Pentagon Agency's Contracts Reviewed,” By Walter Pincus of the Washington
Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/02/AR2006030201705.html
See also:
“Former GOP Lawmaker Gets 8 Years: Cunningham Also Must Pay Back Millions for
Bribery and Tax Offenses,” By Sonya Geis and Charles R. Babcock of the
Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/03/AR2006030300290.html
Scandal
5.
More executives testify of Enron lies in Skilling/Lay trial
“They’re on to us.”
That’s
what Jeffery Skilling reportedly said in a May 2001 meeting after small analyst
released a research note that was critical of the LJM1 and LJM2 off-the-books
partnerships, which had been created by former CFO Andrew Fastow to hide
losses.
"Fastow
said, 'LJM is a good deal for me,'" testified Kevin Hannon, then chief
operating officer of the company's flailing broadband unit. "As I
remember, (Fastow's comment) was met by stunned silence," Hannon said.
"Did Mr.
Skilling say anything?" prosecutor Cliff Stricklin asked.
"Yes. He
said, 'They're on to us,'" Hannon said. "It seemed to indicate the
investment community was beginning to understand how Enron made money."
Hannon’s
testimony was the latest, and perhaps most devastating so far, of a series of
accounts provided by former Enron executives, who have for weeks now been
describing the reckless accounting of Enron and the willingness of Skilling and
Lay to overlook ethics.
Other
testimony last week came from David Delainey, the former trading and retail
energy executive, who has already pleaded guilty to insider trading.
Delainey
recalled an incident in 2000, where he raised concerns about off-the-books
financial instruments known as “Raptors.” Delainey said he had found the
structures of the Raptors to be “odd,” but when he asked Skilling about them,
Skilling "said it had been approved."
Delainey also
described a March 2001 encounter when he confronted Skilling about an
accounting move that Delainey said he thought “lacked integrity.” But Skilling
asked: “What do you want to do?” and told him to “get in line” with the plan,
which was to move millions of dollars in losses to another division in order to
make everything look normal. Delainey told jurors: "I wish on my
kids' lives I would have stepped up and walked away from that table that
day."
Last week also brought the testimony of
former Enron accountant Wesley Colwell, who testified about Enron’s improper
release of funds in rainy-day reserve accountants, even after the books closed.
"Speaking of closed, it looks like we may be looking to beat the street by
.02 instead of .01," Colwell wrote in a 2000 e-mail to his then-boss,
Delainey. "I understand [then-chief accountant Richard] Causey spoke to
Skilling today and this was his preference."
Skilling,
52, is charged with 31 counts of conspiracy, fraud and insider trading. Lay,
63, is charged with seven counts of conspiracy and fraud.
“Witness Says
He Warned Skilling: Enron Played 'Fast and Loose,' Ex-Trading Chief Testifies,”
By Carrie Johnson, Washington Post Staff Writer: http://www.washingtonpost.com/wp-dyn/content/article/2006/03/01/AR2006030102290.html
“Former
Enron executive rocks court,”
By MICHAEL GRACZYK and
KRISTEN HAYS, Associated Press: http://www.businessweek.com/ap/financialnews/D8G3OKV80.htm?campaign_id=apn_home_down&chan=db
“Enron witness: finance structures
"odd"” MICHAEL GRACZYK, Associated Press
Writer: http://www.cbsnews.com/stories/2006/03/02/ap/business/mainD8G3L5983.shtml
Executive
Compensation
6.
Shareholders trying new, less prescriptive strategies to limit executive pay
Shareholders
concerned with runaway executive pay are trying new strategies to limit
executive pay, focusing more on pay-for-performance and less on placing strict
limits, according to a Wall
Street Journal overview
of shareholder proposals on executive pay.
“The new
strategies include simpler, less prescriptive holder resolutions that don't
dictate executives' pay packages. Instead, the new proposals seek to more
closely align executive pay with corporate performance, and provide more
disclosure about pay packages. Holders are also tightening proposals that have
proved popular, such as restrictions on "golden parachutes," reports
the Journal.
“In the
past, shareholders concerned about executive compensation -- who frequently are
allied with labor unions -- sought to limit executive pay, sometimes down to
the penny. But these proposals typically won little support from other
investors, such as mutual-fund managers, and executive pay continued to rise.”
Overall,
there are about 140 proposals dealing with executive pay this year, which is
down from 276 last year. However, one possible reason for the decline is that
many of the proposals last year related to stock options. Now, under new
accounting rules, stock options are required to be counted as expenses.
One
tactic of interest comes from the American Federation of State, County and
Municipal Employees, or AFSCME, which has submitted a proposal at five
companies that would give shareholders a vote on total compensation and pay
policies for the top five executives. The five companies are: Merrill Lynch
& Co., U.S. Bancorp, Bank of America Corp., Home Depot Inc. and Countrywide
Financial Corp.
However, it is
unclear whether these proposals will have much impact. "Every year we hear
from pundits that this is going to be the year in which shareholders rise up
and actually make a change," Greg Taxin, chief executive of
proxy-advisory firm Glass, Lewis & Co., told the Journal. "Unfortunately, we've been hearing
that for a decade."
The median
Fortune 500 CEO received compensation worth $15 million in 2004, according to a
study by Harvard law professor Lucian Bebchuk. According to the Institute for
Policy Studies and United for a Fair Economy's Executive Excess report, at the
367 biggest companies, average CEO pay was at $11.8 million, as compared to
$27,460 for the average worker. The 431-to-1 ratio is up from 301-to-1 in 2003.
In 1982, the ratio was 42-to-1. Around most of the industrialized world, the
ratio is closer to 25-to-1. Meanwhile, the percentage of company profits going
to the top five executives more than doubled between 1993 and 2003, growing
from 4.8 percent to 10.3 percent. A recent study by the Corporate Library also
that showed median total compensation for CEOs increased 30% in 2004 and
average compensation increased 91%, while worker pay rose only 2.2%, which when
adjusted for inflation, is actually a decline of 0.4%.
For more,
see: “Executives' Pay Faces New Tactics: Activist Holders Propose Simpler Plans
to Rein In U.S. Firms' Compensation,” By PHYLLIS PLITCH and KAJA WHITEHOUSE
This
Week’s Action Item
Tell
your Senators: support the Honest Leadership and Accountability in Contracting
Act of 2006
Are you
sick of repeated reports of waste, fraud, and abuse by private contractors in
Iraq? Are you sick of your tax dollars being wasted by conflicts of interest
and corrupt cronyism?
As this
week’s action item, let your elected officials know. And tell them to support
the Honest Leadership and Accountability in Contracting Act of 2006, which was
introduced last week by Sen. Byron Dorgan (D-ND).
Key
provisions Honest Leadership and Accountability in Contracting Act of 2006
include:
• New penalties of up to 20 years in
prison and at least $1 million in fines for war profiteering.
•
Restoration of a rule, dropped by the Bush Administration, that prohibits
awarding federal contracts to companies with a pattern of failing to comply
with contracting laws.
•
Establishment of a “Truth in Contracting” public website identifying
significant over-charges by major contractors.
• A
prohibition of huge monopoly contracts, in order to ensure price competition
from multiple companies.
• A
requirement that federal agencies conduct their own contract oversight, rather
than paying contractors, often with conflicts of interest, to oversee each
other.
•
Strengthening conflict of interest rules that now allow federal contracting
officials to take jobs representing companies to whom they once awarded
contracts.
•
Requiring that political appointees to key federal jobs relating to federal
contracting and public safety have credentials and experience that qualify them
for those positions.
“Taxpayers
deserve to know that their tax dollars will be spent wisely, not left wide open
to be snatched up by fast-buck artists with friends in high places,” Dorgan
said. “This legislation will restore integrity to a federal contracting process
that has too often failed to guarantee that taxpayers get a fair return on the
money they entrust to their government.”
For
more details, see: “ DEMOCRATS UNVEIL NEW LEGISLATION TO REFORM GOVERNMENT
CONTRACTING,” http://democrats.senate.gov/~dpc/press/2006302508.html
