Scarcely a week goes by without another surge in the ongoing corporate crime wave–a large drug company misleads doctors about heart attack risks in order to sell more pills, an insurance company manipulates its earnings by billions through complicated offshore reinsurance dealings, major banks are under investigation for illegally charging minority borrowers higher loan rates or helping a dictator stash his ill-gotten gains.
These particular stories, unlike many other business crimes and frauds, made the news and sometimes even drew Congressional hearings. But Congress has produced no corrective legislation since the narrow-gauged Sarbanes-Oxley law of 2002, inspired by the Enron scandal. Rather, the major accomplishments of the legislative season so far have been laws from the wish list of the behemoth corporations, who annually shell out tens of millions of dollars for lobbying–a bankruptcy “reform” bill for a credit card industry that reported $30 billion in profits last year, a class-action-lawsuit “reform” bill for the insurance companies and the Chamber of Commerce (now the biggest lobbyist in Washington) and an “energy” bill with generous taxpayer subsidies for oil and gas companies like ExxonMobil, which in 2004 already reported the world’s biggest-ever annual profit for a single company: $25.3 billion.
What can be done? Lots. Those looking for ideas would do well to pick up The People’s Business: Controlling Corporations and Restoring Democracy, a new book sponsored by Citizen Works, which I founded, whose authors, Lee Drutman and Charlie Cray, propose that we frame a vigorous movement around a number of immediate and long-term shifts of power away from giant corporations to strengthen a citizen-sovereign democracy.
But nothing begins to happen unless the few progressives in Congress get over their resistance to introducing corporate reform legislation, while pressing for a national and Congressional debate on this all-important subject. Back in the 1960s a few archconservative corporatists would put bills into the hopper that would cause raucous laughter among the dominant liberals. No one is laughing anymore; the corporations’ wish list is now Congress’s to-do list.
The lesson is that even bills that do not make it to a public hearing can still form a nucleus of ideas for educating and organizing the assertive citizenry around the country. Such bills commit their sponsoring legislators to speak for and defend the reallocation of power from the corporate state to patients, laborers, consumers, communities and voters. Such bills form the start of an offense against the corporate supremacists and their allies in the House and Senate. I’ve made these arguments for years with Congressional progressives, providing fully drafted legislation requiring no, or little, allocation from public budgets because it shifts power and facilitates civic organization. Yet none of the fifty-five members of the Progressive Caucus to date would introduce even one of these empowerment bills, though they had little disagreement with them on the merits. Consigned to playing defense (and not too robustly at that) for two decades, discouraged, deflated progressives have become accustomed to defensive thinking, which, of course, corrosively feeds on itself.
It would not be difficult to get the ball rolling with the following modest legislative proposals. Given media attention, such prudent positions might even attract some unlikely Republican co-sponsors, along with liberal Democratic supporters.
1. Crack Down on Corporate Crime.
Most of the leading federal agencies responsible for pursuing corporate criminals–including the Justice Department, the Internal Revenue Service and even the Securities and Exchange Commission–remain woefully understaffed, underfunded and undermotivated. The Justice Department should be directed to create a permanent, well-funded corporate crime division with specialized technical personnel (including accountants, engineers and lab technicians) and the additional resources necessary not only to handle major ongoing fraud, corruption and safety violations (the FBI reports it is investigating at least eighteen cases of corporate fraud in-volving at least $1 billion each) but also to develop the kind of tools prosecutors can use to crack down on corporate crime.
An annual corporate crime report similar to the one the FBI produces on street crime would help law-enforcement officials identify emerging patterns and direct resources more effectively. If we are truly serious about cracking down on the ongoing epidemic of corporate crime, at a minimum the government must collect and disseminate comprehensive information about the nature and extent of the damage.
Another ongoing question is how to effectively penalize corporate lawbreakers. Creative sanctions like equity fines, probationary treatment, behavioral sanctions, dechartering and other structural reforms that address the incentives behind a criminogenic corporate culture are routinely ignored in favor of denials of culpability garnished by slap-on-the-wrist fines. All too often these fines are passed on to consumers and taxpayers. Federal acquisition regulations should be tightened so those lawbreaking corporations do not receive any fraction of the $265 billion worth of government contracts given out each year. Aggressively applied, the debarment sanction can offer a good carrot-and-stick approach to companies that not only break the law but also restructure their operations in order to claim nominal residence in Bermuda and other tax havens.
2. Rein in the Imperial CEOs.
Warren Buffett once suggested that willingness to curb excessive CEO pay is “the acid test of corporate reform.” Yet the ratio of average large company CEO pay (now $11.8 million) to average worker pay ($27,460) spiked from 301 to 1 in 2003 to 431 to 1 in 2004. While Wal-Mart paid CEO Lee Scott 871 times what it paid the average “associate,” the ratio between executive and worker pay in Europe hovers closer to 25 to 1. In 1982 the ratio at US corporations was about 42 to 1; by 2000 it had spiraled to about 525 to 1.
Not only does executive greed spawn corruption and down-the-line resentment; it also creates significant conflicts of interest, such as providing an incentive for CEOs to offload debt and inflate profits so their stock options are more enriching.
Unfortunately, shareholders’ increasing attempts to rein in outrageous CEO pay packages by reforming the board nomination process and creating tighter links between pay and performance have been met with fierce resistance by dominant company executives, the Chamber of Commerce and the Business Roundtable. It’s time for the SEC to give corporate shareholders–the true owners of the corporations–the right to curb out-of-control executive pay packages, which often expand while the companies’ earnings and performance decline. Representative Martin Sabo in July introduced the Income Equity Act, which would eliminate tax deductions for executive compensation exceeding twenty-five times that of the company’s lowest-paid full-time employee.
3. Shore Up the Civil Justice System.
One of the lost lessons of Enron and other corporate crime cases is how Washington’s deregulation created an incentive for the market system’s professional “gatekeepers”–the accountants, bankers and lawyers–to avoid their responsibilities and, in some cases, even aid and abet the fraud. Shortly after Enron’s collapse Columbia law professor John Coffee advised a Senate committee that so-called securities reform laws like the Private Securities Litigation Reform Act (PSLRA) of 1995, which made it harder for shareholder victims of corporate financial fraud to sue, along with related laws and court decisions, were probably the single greatest structural and psychological cause of the company’s downfall. The reason is that these laws weakened the potential deterrent of civil lawsuits, emboldening the executives, accountants and lawyers behind Enron and other scandals to cook the books.
This experience with the PSLRA should be a sobering harbinger of what will likely result from the current bipartisan tort “reform” binge. Although the twisted positions advanced by proponents of tort “reform” have been handily rebutted by Public Citizen (citizen.org) and the Center for Justice and Democracy (centerjd.org), which have produced mountains of facts and brought forth the victims of bad physician or hospital practices to speak for the freedom to hold their harm-doers accountable, the civic and political organization is not there yet.
4. Regulate in the Public Interest.
The ferocious corporate assault over the past twenty-five years on regulations that worked has cost lives, health and trillions of dollars. Most of the companies involved in recent giant accounting scams fall within the industrial sectors that were radically deregulated just years before–energy, banking, brokerage and telecommunications. In these industries, deregulation, or taking the government cop off the corporate beat, created a kind of gold-rush mentality. This put pressure on companies to cook up new deals and phony accounting to lure investors. Bills to re-regulate with more resources for corporate law enforcement and to revive the proposed small consumer advocacy agency, which almost passed in the 1970s, were blocked by lobbies.
5. Trust-Busting in the New Century: Start With the Media.
It’s time to think seriously about a new antitrust policy that recognizes new ways of domestic and international collusion, price-fixing and product fixing. When transnational power rests with a handful of large corporations, democracy necessarily suffers. As Louis Brandeis once famously put it, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
The key to corporate reform is a vibrant press. When the media fail to provide coverage of civic engagement, change is difficult. Because today’s media are essentially dominated by six multinational conglomerates, much of the news looks and sounds the same, regardless of what channel we may be watching or what newspaper we may be reading, and regardless of our own political views. One way to insure the broader spectrum of opinion necessary for a vibrant democracy is to enact competition rules–limits on cross-media ownership, especially in localities, and on vertical integration, for example–that essentially mandate diversity by prohibiting media conglomerates and restoring the fairness doctrine on the public’s airwaves. Remember the remarkable collaboration in 2003 of left and right (e.g., Common Cause and the NRA) against the FCC’s media concentration rules.
In addition to advancing the nonprofit, noncommercial media outlets, including low-power radio, today’s media activists are battling the corporate takeover of new media technologies like community wireless networks, key community assets that deserve to be protected from predatory corporations. Democratic leadership has not thrown its support behind Representative Maurice Hinchley’s Media Ownership Reform Act, which would reduce media concentration and restore more fairness to broadcasting.
6. Get Corporations Out of Our Elections.
The cost of running for a seat in the House of Representatives is more than $1 million. The cost of winning a seat in the Senate is well over $5 million–running nearly as high as $40 million in the largest states. The Bush/Cheney 2004 re-election campaign spent $367 million. As a result, those who run for office package their candidacies in a manner attractive to those with money. Roughly 75 percent of the money raised in campaigns comes from business or business-related interests. Corporations are legal entities, not human beings; as such they should be prohibited from contributing to campaigns, sponsoring PACs or lobbying.
7. Reclaim the Constitution.
The court-made doctrine of “corporate personhood,” created by pro-corporate judicial activists in the late nineteenth century, continues to expand as the result of a well-orchestrated “business civil liberties” movement led by dozens of corporate-front legal groups and right-wing think tanks. The consequences are far-reaching and often insidious. Corporations’ growing use of referendums to advance their economic interests and the intrusion of commercial advertising into the public sphere are often legitimized by questionable claims to First Amendment speech rights. Corporations also increasingly use constitutional challenges to undermine local decision-making authority and federal regulations and to impede the right of association by workers, consumers and small investors.
The relentless colonization of the Constitution by corporations and their proxies has overwhelmed citizens’ ability to express their collective interest and exercise their sovereign authority over big business. Comprehensive corporate reform should be a central concern of progressive legislators. But they must drop the bills in the hopper to get the discussion under way. Avoidance of corporate power issues reaches deeply into both parties. This was reflected in the non-questioning of former corporate attorney John Roberts during his Senate confirmation hearings.
Conclusion: Subordinating Corporations to People.
Ultimately, the most effective way to control corporations is to restore citizen democracy and find effective ways to reclaim the once widely accepted principle that corporations are but creatures of the state, chartered by the state under the premise that they will serve the public good, and entitled only to those revocable rights and privileges granted by citizen governments. That is, corporations are our servants, not our masters. By doing so we will be able to create a more just and sustainable economy, an economy driven by the values of humanity and community and democracy instead of the current globally omnicidal economy driven by the relentless pursuit of short-range financial profit at any cost–market and military–to innocent peoples of the world.