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Following on Republican embrace of lobbying reform, Democrats responded with their own set of reforms, which they released last week as "The Honest Leadership and Open Government Act" (complete with clever, Inside the Beltway titles).
While Democratic leaders took the press conference introducing the reforms as an opportunity to blast Republican leadership as corrupt, the reforms that they proposed are not that different in most respects from what Republicans have proposed.
For example, both sides say they want to ban travel funded by private groups. Democrats want all lobbyist gifts to be banned. Republicans want to limit gifts to $20. The current limit is $100 per year and $50 per occasion.
However, neither party has proposed to ban lobbyists from being involved in fundraisers.
Both parties say they want to increase the number of years former lawmakers and staffers have to wait until they become lobbyists from one to two years. Neither party has proposed an outright ban on lawmakers becoming lobbyists, or even a cooling off period that would be meaningful, such as five years.
More importantly, neither party has talked at all about the campaign finance system, which is in many ways what gives lobbyists their power. Because most lobbyists represent wealthy special interests who donate heavily to congressional campaigns, they instantly have the kind of access that ordinary citizens can hardly fathom.
To take action, see This Week's Action Item.
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The number of shareholder resolutions will likely top 400 for 2006, according to an estimate by proxy consulting firm Georgeson Shareholder. According to Georgeson's "Annual Corporate Governance Review," the number of shareholder proposals has been around 400 for the last few years. There were 375 shareholder proposals last year, 414 in 2004, and 427 in 2003. That was up from 241 in 2001 and 273.
Last year, 133 of the resolutions were related to executive compensation. Bruce Goldfarb, the senior managing director of Georgeson, predicts that compensation-related issues will continue to be a major focus of shareholder resolutions. Several unions and state pension funds have become increasingly aggressive in using their power as shareholders to put pressure on executive compensation.
Goldfarb also has sad that resolutions supporting majority voting for directors will also be a major focus (Currently candidates for the board of directors do not need a majority support from all shares—they only need a majority of votes cast. However, many shareholders withhold their votes because they do not want to support the offered candidates but are not given any other choices). According Georgeson, last year shareholders introduced majority-voting resolutions at 79 companies. Of those, 24 resolutions got majority support, and the remained received an average of 43 percent support.
Earlier this month, the proxy season kicked off in a positive way for shareholder activists. A group of 26 organizations called the Tri-State Coalition for Responsible Investment withdrew a shareholder resolution at General Electric after GE complied with their demands for the release of data about how much the company was spending to clean up PCB-contaminated sites. Last year, a shareholder resolution on the issue won 27.4 percent support; the year before it only won about 10 percent support.
Labor unions are expected to be most active again this year. According to Georgeson, last year they filed 44 percent of all resolutions. Individual shareholders filed 42 percent of all resolutions, followed by religious organizations(6 percent), public pensions (4 percent), and other shareholder groups (4 percent).
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Last week, the Securities and Exchange Commission voted to put new rules about executive pay disclosure up for a 60-day public comment period. But the general consensus seemed to be that these rules would actually do very little to curb runaway executive pay.
As proposed, the new SEC rules would require companies to add up all the compensation given to the top five executives and come up with one "total pay" number. Under the current system, it is often extremely difficult to figure out what top executives are earning, since companies offer many perks but rarely disclose them clearly.
However, experts and commentators raised some concerns.
Lucian Bebchuck, a law professor at Harvard who specializes in executive compensation, argued that without giving shareholders some power to hold directors accountable, more information would be meaningless. Bebchuck wrote the following in Fortune magazine.
Executives' pay is not set by companies' owners, but rather by companies' boards. Insulated from shareholders by existing legal arrangements, boards have not been setting pay arrangements solely with shareholder interests in mind. Indeed, notwithstanding the limitations of current disclosure requirements, some significant flaws of existing pay arrangements have been evident for some time. Given investors' limited power, however, these flaws have persisted.
In Tuesday's meeting, an SEC commissioner remarked that, once improved disclosure requirements are in place, the continuation of compensation practices would imply that investors are content with them. Such inference would be warranted, however, only when boards could be relied on to change practices opposed by shareholders. Under existing arrangements, the existence of practices merely implies that directors are content with them, not necessarily shareholders. After all, despite investors pressure on companies to improve their disclosures of pay, an SEC intervention is necessary to get companies to do so.
What is necessary, then, is not only better disclosure but also a fundamental reform in the allocation of power between boards and shareholders. Shareholders have been told that recent reforms, which strengthened director independence, will secure adequate board performance. But even though independence rules out some bad motives that directors might otherwise have, it does not provide the affirmative incentive to serve shareholders that are necessary to counter directors' natural tendency to side with executives.
In a similar vein, MSNBC Senior Producer John W. Schoen also criticized the lack of attention to corporate governance. Schoen wrote the following:
Still, the rules will do little to limit the kinds of cozy relationships between CEOs and their boards that have given rise to some of the most controversial pay packages. For that, say experts in corporate government, the SEC needs new rules on how corporate directors are chosen.
There's also little in the proposed rules to empower shareholders to take action when they believe a CEO is overpaid. The vast majority of corporate directors run unopposed, largely because of the huge expense in mounting a proxy battle to unseat an incumbent board.
Meanwhile, the Los Angeles Times quotes Dan Wetzel, a vice president with compensation consulting firm Pearl Meyer & Partners, who raises the specter of increasing compensation from disclosure because executives who know better what other executives are earning will actually demand more in terms of compensation.
"We have a good probability that pay will actually increase based on increased disclosure," Wetzel told the Times. "To keep up with the Joneses, there will be some increases that are required."
According to the Corporate Library, compensation for chief executives at 2,000 of the biggest companies was up 30 percent in 2004, even more than the 15 percent jump in 2003, which was even more than the 9.5 percent jump in 2002.
According to Business Week, average pay in 2004 was up another 15%—to $9.6 million—and nearly 40 executives took home more than $20 million (and that was without windfall stock options). Average worker pay, however, only rose 2.9%, to $33,176 in 2004. Meanwhile the percentage of corporate profits going directly into the pockets of the five executives more than doubled between 1993 and 2003, growing from 4.8 percent to 10.3 percent.
And according to Lucian A. Bebchuk of Harvard and Yaniv Grinstein of Cornell, ten percent of all corporate earnings went to the top five executives in 2003, up from 1993.
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Former HealthSouth CEO Richard Scrushy, who last year was acquitted on charges that he led a $2.7 billion fraud at the company, paid a local journalist and a local preacher in Birmingham, Ala., where his six-month trial was held, in order to curry favor with the local African-American community.
The Birmingham Times, a small but influential newspaper in the community, printed a number of articles by Audry Lewis, who says she received $11,000 from a public relations firm that looked over her sympathetic articles before they came out.
Lewis told reporters that she originally wrote the columns because she genuinely thought Scrushy was innocent. Later, she said, Scrushy contacted her and began paying her. "He didn't think he was getting a fair shake in the media, which is why he hired me," she told the Associated Press.
Scrushy also reportedly wrote another $5,000 check to the Rev. Herman Henderson, of the Believers Temple Church. Henderson was one of several local African-American preachers who turned up in the courtroom to show support for Scrushy during the trial.
Lewis and Henderson, however, told reporters that Scrushy still owes then another $150,000 for public relations work that he never paid up for.
A spokesman for Scrushy admitted last week to making donations to the church, but said they were purely for charity.
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In recent years, the burgeoning corporate social responsibility movement has come to define the hopes and dreams of a growing number of corporate accountability activists who want to change corporate behavior. Increasingly frustrated by lack of government regulation and a general unwillingness by government officials to curb excesses of corporate behavior, these activists have sought various means of appealing to companies directly, whether it be through consumer boycotts, shareholder resolutions or targeted corporate campaigns. Meanwhile, industry has responded with a growing number of voluntary codes of conduct.
Implicit in much of the activity is a claim that businesses can actually do well by doing good—that corporate social responsibility will pay off in the long run, that good environmental practices yield operating efficiencies, that treating stakeholders like consumers and employees well will result in profitable long-term relationships, and so on....
But is there a business case for social responsibility? If so, how strong is it? Will corporations become social responsible on their own? If not, what will it take to make them so? And what is corporate social responsibility, anyway?
Enter into this thicket David Vogel, a professor of business ethics and political science at the University of California, Berkeley. In a pithy yet comprehensive book entitled The Market For Virtue: The Potential and Limits of Corporate Social Responsibility, Vogel takes a good, hard look at what the CSR movement has accomplished, what it hasn't accomplished, and why.
Surveying the landscape, Vogel finds that "there is no evidence that behaving more virtuously makes firms more profitable." Then again, "the fact CSR also does not make firms less profitable means that it is possible for a firm to commit resources to CSR without becoming less competitive."
In some cases, it makes sense for companies to engage in socially responsible activities. This is especially true in cases where companies have visible brands that are under attack by critics, or where companies that have cornered niche markets for socially responsible brands. But in other cases, socially responsible activities can be costly and not worthwhile. This is especially the case in industries that are highly competitive and /or where companies do not sell directly to consumers.
One problem Vogel notes is that there is not always a consumer demand for virtue. While consumers may say that they would be willing to pay more for products that protect the environment or are produced by socially responsible companies when asked straight up, few actually do when they have to shell out more for real. "There is a major gap between what consumers say they would do and their actual behavior," notes Vogel. For example, while Ford president William Clay Ford Jr. promised to improve the company's fuel efficiency when he became president, Vogel argues that consumer demand for SUVs limited what Ford could profitably do.
Surveying progress in three main areas, "Working Conditions in Developing Countries," "Corporate Responsibility in the Environment," and "Human Rights and Global Corporate Citizenship," Vogel notes a number of cases where corporations have gotten religion and changed their practices. These cases, however, are almost entirely due to citizen pressures, and government officials are rarely to be seen. The general story seems to be as follows: citizen activists highlight a particular bad corporate behavior, launch a campaign to bring media scrutiny to the issue, and the company responds by changing its behavior. Typically, some kind of voluntary industry code of conduct or monitoring agency forms as a result.
Yet, Vogel is generally skeptical of these codes of conduct. All seem to lack teeth, and it is often even hard to formulate a decent measure of progress on particular issues. "As many critics of CSR have observed," Vogel notes, "social welfare would be enhanced even more if many of these voluntary standards were made legally binding. While this may well be true, it should not be allowed to obscure the significance of improvements that have taken place."
Ultimately, Vogel argues that what he calls "civil regulation" (i.e. citizens monitoring and pressuring corporations to be more responsible) can only have limited impact. The vast majority of corporations are not likely to sacrifice profits in order to be more responsible, and absent widespread consumer demands and pressures for corporate social responsibility, (which do not seem to be coming en masse anytime soon) corporations will not generally find such behavior profitable.
What is needed, Vogel argues, is that governments, both domestically and internationally, must demand more from corporations. "There are limits to what even the most socially committed firm can accomplish in the absence of responsible government practices and policies," Vogel writes. For example, "The impact of corporate commitments not to pay bribes will be undermined if governments continue to demand them, while many of the ethnic tensions and violence associated with investments by extractive industries stem from public governance failures."
Vogel advises Western governments to "assist this process by incorporating labor and environmental provisions into bilateral and regional trade agreements, giving preferential market access to governments with effective regulatory standards, and providing governments with technical and financial support."
The Market for Virtue provides a balanced and pithy history of the corporate social responsibility movement and a useful dose of realism to the frequently exaggerated claims surrounding CSR days. It cogently argues why voluntary codes of conduct and targeted citizen activism can only get us so far, and why those who care about corporate social responsibility should be spending more effort on both national and international governments. In short, The Market for Virtue ought to be required reading for anybody who cares about making corporations more responsible—which ought to be everyone.
While congressional leaders are busy touting their lobbying reform plans in Washington, they are ignoring some fundamental problems in the system.
The real problem is not that politicians are selling their votes for a $50 lunch or a trip on a corporate jet. The real problem is that they were bought long ago by a corrupt system of campaign finance.
Consider, for a moment, what it takes to get elected these days. In order to run for a seat in the House of Representatives, you need to rise, on average, a million dollars. A seat in the Senate takes about $6 million. And to run for president? Well, you'll need at least $200 million, probably $300 million. And where can you get this kind of money? Well, you can turn to businesses and wealthy donors, who can make those $2,000-a-pop donations like nothing and then get 50 of their friends to do the same. All told, about three-quarters of campaign cash these days is business-related.
What this means is that if you want to get elected, you're going to have to find a way to appeal to these donors, whether by promising favors or, even better, being a free-market ideologue who believes with missionary zeal that doing away with almost all regulation and setting business free to do as it pleases will make America great again. No wonder so many elected leaders are so sycophantic to business interests and happy to meet with their lobbyists. Without that kind of pronounced sympathy for business, it's hard to get elected.
As this week's action item, please call up your elected officials and let them know that you think current lobbying reform proposals are inadequate. Tell your elected officials that unless they address fundamental issues of campaign finance reform, the lobbying reforms as proposed are largely cosmetic. Ask them to stand for real reform to end corruption in Washington by truly ending the pay-to-play version of democracy.
We encourage you to tell everyone you know about the new Citizen Works book, The People's Business and to distribute promotional flyers locally. Flyers are available online, or if you would like to have some flyers mailed to you, please e-mail news@citizenworks.org.
The People's Business, which is available in stores everywhere, examines the very nature of corporate power, presenting a range of strategies to curtail it, explaining how ordinary people can restore citizen control. Bringing together the recommendations of the Citizen Works Corporate Reform Commission—a coalition of leading authors, activists, scholars, and professionals—The People's Business is a vital, clearheaded plan for strengthening individual rights, transforming corporations into engines of public prosperity, and creating a sustainable, life-respecting society where the people have the power.
Bolstered with relevant history and examples, The People's Business is a lively book that will appeal both to deeply-committed long-time activists looking for a coherent approach in the struggle for corporate accountability as well as thoughtful citizens everywhere who may be looking for immediate measures that serve as effective means of corporate reform.
It is our hope that The People's Business will serve as an important tool in educating people about what they can do to challenge corporate power. But it will only be an important tool if people actually read it. That's why we need your help in spreading the word!
Why not pick up your copy at a bookstore today if you haven't already?
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