In August of 2002 I received a politely phrased notice from my cable company, Adelphia, addressed to “Dear Valued Customer,” announcing that my monthly cable fee would be increasing. The letter explained that “like other businesses, Adelphia constantly faces increases in operational expenses such as wages, specialized training for our employees, utilities, fuel, insurance, equipment….” Missing from the missive? Any mention of another operational expense that no one at Adelphia seemed too happy to discuss. During the unfortunate latter days of his reign, former CEO John Rigas had borrowed $3.1 billion from the company and spread the money around like seed on a sun-scorched lawn. His own lawn, of course. He spent $13 million to build a golf course in his backyard, $150 million to buy the Buffalo Sabres hockey team, $65 million to fund a venture-capital group run by his son-in-law, thousands to maintain his three private jets, and $700,000 for a country-club membership. It’s a wonder my bill’s not going up a million dollars a month. I just hope Adelphia’s subscribers aren’t also paying for his bail.
In the superheated 1990s we were told repeatedly that the “democratization of capital” and unparalleled increases in productivity would level the playing field and produce unprecedented gains in everyone’s standard of living. Well, far from closing the vast gap between the haves and the have-nots, the lunatic excesses and the frenzy of fraud perpetrated by our high-flying corporate chieftains have left America’s 401(k)s and pension plans in ruins and more than 8 million people out of work. Meanwhile, despite the much-vaunted Corporate Responsibility Act and the highly publicized roundup of a few of the most heinous offenders, the awful truth is that the corporate tricksters have pillaged the US economy and gotten away with it. They’re still living in their gargantuan houses, still feasting on their wildly inflated salaries and engorging themselves on staggering sums of stock options, while the rest of America tries to figure out how to rebuild for retirement. Or send a kid to college on a worthless stock portfolio.
Since, at its heart, the corporate scandal is a political scandal–corporate money corrupts politicians, who, by passing or neglecting to pass laws, make corporate crime possible and profitable–it’s hard to see how we will ever get rid of this corporate hangover until we cure our politicians’ unslakable thirst for campaign cash. Ultimately, the only way is by adopting the Clean Money, Clean Elections model, which replaces the nonstop money-grab with full public financing of elections. In the meantime, a whole raft of specific corporate reforms is urgently needed:
§ Treat stock options as the expenses they are. This reform was dropped from the Sarbanes-Oxley bill–a set of financial-sector reforms passed by Congress last summer–even before it hit the Senate floor. Tom Daschle, fresh from getting an earful from venture capitalist and big-time Democratic Party donor John Doerr (Doerr and his wife have given $619,000 to Democrats since 1999), pummeled John McCain’s attempt to force a vote on stock-option reform, before jetting off to Nantucket.
§ Make breaching the Chinese wall between research analysts and investment bankers illegal. The Sarbanes-Oxley bill has done nothing to make it harder for investment banks to deceive investors with overly optimistic research, using their research departments to land banking business.
§ Prohibit accounting firms from providing consulting services while auditing a company’s books. Under Sarbanes-Oxley, the provision of consulting services by audit firms is only restricted somewhat, not made illegal.
§ Outlaw offshore tax havens and, in the meantime, bar companies that move their headquarters overseas from competing for government contracts. The Sarbanes-Oxley bill neither bans nor restricts the use of tax havens by American corporations. Nor does it ban or restrict government contracts from going to these companies. In 2001 alone such contracts topped $1 billion.