By Richard S. Dunham Memo to: President Bush
Re: Your upcoming speech on corporate responsibility
I know you've been agonizing over the speech on corporate governance that you're planning to give on Wall Street on July 9. It's going to be one of the most important of your Presidency. With the stock market swoon costing average Americans trillions of lost dollars, your mission is to reassure citizens in general, and investors in particular, that they have no reason to panic.
As a probusiness President, you're duty-bound to acknowledge that modern capitalism has systemic problems that need fixing. It's a difficult balancing act, I admit. You need to let people know that serious flaws in accounting and corporate governance must be addressed, without setting off a panic that throws the economy into a double-dip tailspin.
With the departure of your trusted wordsmith Karen Hughes, I thought you could use a bit of unsolicited advice in crafting your speech. So, for what it's worth, here's what you might want to tell your Wall Street audience:
Ladies and Gentlemen of the Financial Community,
I am glad to have this opportunity to speak with you about a problem that has been troubling me for months: The willingness of a small but alarming number of corporate executives to violate the public trust -- and sometimes the law.
As all of you know, I am a staunch defender of the free-enterprise system. I am the first President to have received an MBA degree. I ran a business, sometimes it was a big business, sometimes it was a small business, depending on the state of the economy and the energy industry. But I learned a lot in the private sector. I learned that trust and confidence are as important as startup capital.
And I am troubled by the examples of lying, cheating, and outright stealing by the captains of industry, who have long been held in high regard in American life. This could undermine public trust and confidence in the American system.
There's no reason to panic. Both the American economy and the capitalist system remain fundamentally sound. The economy has begun a slow but steady rebound from the economic shock of September 11. America pulled together then, when threatened by forces that want to destroy our capitalist system. And we must pull together now, when threatened by evil forces within our capitalist system.
As I said so often during my campaign in 2000, America is ushering in a new Responsibility Era, and that ethic of responsibility must extend to America's boardrooms. I want every American to know that the vast majority of businesspeople are honest individuals who do right by their shareholders and by their employees. The unethical actions of an unseemly few should not be allowed to unhinge our whole free-enterprise system.
Capitalism relies on transparency and truth. Corporate America must understand there's a higher calling than trying to fudge the numbers. I'm sick and tired of executives who try to slip a billion here or a billion there and hope nobody notices. Maybe they're trying to pump up that stock price. Maybe they're looking to get a bonus. Maybe it's the rush of trying to game the system. Whatever it is, it's wrong. And if it's not criminal already, it ought to be.
I've said for months that the first thing we need to do is to enforce the law. You know I'm tough on crime. And I don't think that a corporate criminal deserves to be coddled any more than a common crook. A Wall Street thug should be treated no less harshly than a street thug. Put 'em behind bars. And I don't mean those country-club prisons with the golf courses and the air-conditioning. As John Bogle, the founder of Vanguard, told BusinessWeek, "If we sent a white-collar criminal to Attica, I don't think we'd have another white-collar crime in this generation."
To help prosecute corporate criminals, it's time to increase the enforcement staff at the Securities & Exchange Commission. And it's time to send reinforcements to the Justice Dept. To start with, Congress should immediately approve the emergency supplemental spending bill that includes $20 million to allow the SEC to hire 100 new lawyers and accountants over the next two years.
We need a larger infusion of funds to stem the brain drain at the SEC. With the salaries we offer, the government can't compete against the big accounting firms for the best and brightest young minds. I now realize that Congress was right when it authorized $776 million for this purpose, far more than the $487 million that I earlier had proposed. It's time that lawmakers finish the job, so that the SEC and Justice Dept. can do theirs.
On June 27, the SEC ordered the CEOs and CFOs of the 1,000 largest U.S. public companies to certify that the financial information they submitted in the last year was fair and accurate. I am asking the commission's compliance staff to find out if these executives are telling us the truth.
In March, I proposed a 10-point plan designed to provide more accurate information to investors, to make corporate officers more accountable, and to create a stronger, more independent auditing system. Corporate officers who personally benefit from false accounting statements should lose all the money gained by their fraud. When bad accounting practices make the company appear to be more successful than it actually is, executives should lose their phony profits gained at the expense of employees and stockholders.
Corporate leaders who violate the public's trust should never be permitted to return to positions of public trust. That's why I'm asking Congress to give the SEC more power to ban corporate leaders who abuse their trust from ever serving again as officers or directors of publicly held corporations.
To protect savings, I proposed giving workers greater freedom to diversify and manage their own retirement funds. It would ensure that corporate executives are held to the same restrictions as workers during blackout periods, when employees are prohibited from trading in their accounts. This should give workers confidence that their investments will not fall prey to unethical executives.
This was a good start. At the time, I thought it was sufficient to deal with the problem. But, as we have seen in recent weeks, the problem is far more pervasive and systemic than any of us could have imagined just a few months ago. So more is required.
We must clean up the accounting industry. We can start by severing the ties between auditors and consultants. Accountants should have one mission: to find the financial truth. They must be truly independent, not part of the team they are reviewing.
Wall Street has been embarrassed -- and rightfully so -- by the scandals involving analysts who say one thing publicly and another privately. It is time to sever ties between investment bankers and analysts. And it is time to make it a crime for corporate executives who abuse the public trust by knowingly issuing financial statements that are intentionally misleading, even if they are not outright lies. Faith in capitalism relies on a faith in the numbers.
This is not just a Wall Street problem, this is a problem for our way of life. In the past decade, the number of Americans invested in equities has exploded. Today, two-thirds of us have investments in 401(k)s, mutual funds, or stocks. It's not just the wealthy, either. A majority of union members are investors. Cab drivers, hairdressers, waitresses -- they belong in the market, too.
If a company like WorldCom games the system by nearly $4 billion in expenses and reporting profits when it may have actually lost more than a billion dollars, that hurts more than Goldman Sachs and Citigroup. It hurts the assembly-line worker struggling to make ends meet and hoping for an easier time in retirement. The actions of the evil few are not only illegal, they are immoral. For the sake of all of us, we need to rid capitalism of this corrosive contaminant.
It's your job to spread the word. Tell the CEOs and CFOs and COOs to get with the plan. Tell Congress to act -- now -- rather than simply playing partisan games. The future of the American economy is too important for wedge-issue politics. We are all in this together. One nation, under God, indivisible. Thank you.
There's your speech, Mr. President. Now have at it. Dunham is a White House correspondent for BusinessWeek's Washington bureau. Follow his views every Monday in Washington Watch, only on BusinessWeek Online