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The Corporate Reform Weekly:
Citizen Works' look at the Campaign for Corporate Reform

March 11, 2002

THE WEEK IN WASHINGTON:

Quick Summary

• Bush introduces his Plan to Improve Corporate Responsibility and Protect America's Shareholders.
• Sens. Chris Dodd (D-CT) and Jon Corzine (D-NJ) introduce a bill to drastically expand accounting regulation.
• Rep. Richard Neal (D-MA) introduces a bill to impose a U.S. tax on companies that move their headquarters offshore without actually relocating their operations.
• Sen. Edward Kennedy (D-MA) and Rep. George Miller (D-CA) both introduce pension reform bills that would mandate employees to be notified of insider trades, among other things.

In perhaps the surest sign that Americans are demanding corporate reform after Enron, President Bush himself has co-opted the issue. Last week he introduced a ten-point plan to, as he put it, "improve corporate responsibility and protect America's shareholders."
The plan is based on three core principles:

1) "Providing better information to investors"
2) "Making Corporate Officers More Accountable"
3) "Developing a Stronger, more independent auditing system."

The proposal contains a few promising ideas, like making CEOs personally responsible for their company's public financial statements, and prohibiting them from serving on corporate leadership positions if they abuse their rights.

But there should be no mistaking this plan for serious reform. The language is vague and the enforcement depends on the "kinder, gentler" Harvey Pitt-led Securities and Exchange Commission and the industry itself.

Some telling highlights from the President's remarks:

"In America, by far most businesses fulfill their responsibilities. They do not cut ethical corners, or neglect workers, or disregard community standards."

"It is important to provide sound regulation and remedies where needed, without inviting a rush of new lawsuits that exploit new problems instead of solving them."

"We need to get back to basic capitalism."

In the Senate, meanwhile, Sens. Chris Dodd (D-CT) and Jon Corzine (D-NJ) introduced more promising accounting regulations - "The Investor Confidence in Public Accounting Act of 2002"

The bill does a number of things:

1) It doubles the size of the SEC accounting staff at a cost of several hundred million dollars.
2) It restricts accounting firms who audit a company from providing non-audit services to the same company.
3) It creates an Independent Regulatory Organization (IRO) to audit the auditors and report to the Securities and Exchange Commission (SEC)
4) It prohibits any accounting firm from auditing a company whose controller or chief financial officer had worked at the same accounting firm in the last two years
5) Improves transparency of financial disclosures

What Sen. Dodd had to say:
"Enron has illustrated serious problems that require more than just wallpaper, but sound and serious reforms that will help seal cracks in the current system. This measure helps address those problems by improving our financial reporting system and by augmenting and strengthening the rules governing the accounting profession to ensure greater investor confidence and stability in the markets."

Perhaps the most promising piece of legislation introduced last week was a bill by Rep. Richard Neal (D-MA) (H.R. 3884) that would impose a U.S. tax on companies that move their headquarters offshore without actually relocating their operations. The bill comes in response to a growing number of companies who are incorporating in offshore tax havens to avoid paying U.S. taxes. Neal's bill would require businesses to actually move substantial assets and shareholders offshore to avoid paying U.S. taxes.

What Rep. Neal had to say: "What we're attempting to do with this legislation is to not only generate some discussion, but to offer a time certain - September 11 - for the purpose of telling these companies that we believe that if individuals were doing this that there would be outrage across the country and that what they're doing is simply attempting to avoid the American income tax."

In the area of pension reform, a bill by Sen. Edward Kennedy (D-MA) is gaining momentum. Kennedy's bill, Protecting America's Pension Act (S. 1992), requires that employees be informed of insider stock sales and pushes for a greater role for employees in investment decisions. The bill also would require companies to take out insurance to cover major pension losses and prohibits employers from forcing employees to hold company stock.

But unlike earlier Democrat proposals, the bill does not place a cap on the amount of 401(k) portfolios employees can invest in company stock. The bill requires 30-day notice of blackout periods but doesn't say anything about insider trading during blackouts. And similar to most Republican proposals, Kennedy's bill requires employees to hold company stock for three years before being allowed to sell it and calls for increased professional retirement advice for employees as a remedy. It also would establish an "Office of Pension Participant Advocacy" to evaluate pensions through the Department of Labor.

What Kennedy had to say: "To guarantee real worker choice, we must give workers a voice on the boards of pension plans. The Administration's pension proposal fails the test. It's a placebo plan that could not have prevented Enron workers from losing everything. It does nothing to address the core issue of employer pressure. Their proposal endorses conflicted advice from financially interested parties for workers."

In the house, Rep. George Miller (D-CA) introduced the "Insider Stock Sales Employee Notification Act" (H.R. 3840) which requires employee notification of insider stock sales within 24 hours.

What Rep. Miller had to say: "Employees have a right to know when their executives are dumping company stock. They should then be able to make an informed decision as to whether they want to sell any of their own company stock in their retirement accounts."

Click here to view Citizen Works' complete summary of post-Enron legislation.

NEWS AND VIEWS:

Organizing People: The one sure way to defeat Enronism