In front of a New York audience on Tuesday, President Bush
unveiled a revised plan to counter corporate wrongdoing and accounting
fraud, saying, "There can be no capitalism without conscience, no wealth
without character." Adam Smith, the father of free-market economics,
couldn't have said it better.
Smith always argued that smooth-functioning markets require
ethical behavior at their center. From Day One of his presidency, Bush has
applied this rule even more broadly, emphasizing the need for ethical
clarity and moral certitude in all areas of American life. He has
successfully applied the rule of ethics to the war on terror, and now he is
transferring the very same principle to root out corporate corruption.
From the election campaign to today, poll after poll shows that
the public believes Bush is a leader with strong character and unshakable
moral principles. Following the blowups of WorldCom, Enron and Tyco -- and
many other rotten apples -- Bush's honest outrage has been heartfelt, and
It has also shone above the political carping of Tom Daschle, Al
Gore, Richard Gephardt and other national Democrats who would locate the
source of the contagious virus of accounting fraud and corporate corruption
within the Bush administration. Theirs is a political, reckless and silly
approach to a serious situation. The bad-business bug gained strength and
spread well before George W. Bush became president. And today, it is a grave
problem that requires sober solutions.
Serious Democrats, such as Banking
Committee head Paul Sarbanes and Investigations Subcommittee chairman Carl
Levin, have taken a completely different tack from the business-as-usual
partisan politics of the Daschle gang.
Sarbanes has crafted a significant proposal to set up an
independent accounting-standards board -- one that will end conflict of
interests between the auditing and consulting functions, properly score
stock options, create new pressure for independent boards of directors, and
legislate tough legal sanctions on executives, bankers, auditors,
accountants and others who violate the new standards.
The accounting system desperately needs a fix -- it is even more
incoherent than the dreaded tax code. A new accounting-standards board
should come under the aegis of the SEC. Along with proposals from the New
York Stock Exchange to create truly independent boards of directors, this
action will promote honest accounting and shareholder-based corporate
Meanwhile, Levin has just as seriously proposed giving the SEC,
the federal government's principal accounting overseer, the right to levy
tough fines on corporate evildoers without having to go to court first.
Suburban liberals like Sarbanes and Levin, it seems, have suddenly become
conservative lawmakers who will "move corporate accounting out of the
shadows," as Bush rightly put it, and protect the basic workings of our
wealth-creating capitalist system.
Bush, in tune with these focused Democrats, has proposed a
doubling of the maximum prison term for mail- and wire-fraud statutes from
five to 10 years. This severe jail-time penalty will greatly concentrate the
executive mind. And so will Bush's proposal that fraudulently earned bonuses
and compensation must be returned; and so will his request that corporate
officers and directors who engage in serious misconduct be barred from again
sitting in corporate-leadership positions. More, if the Bush corporate
doctrine moves through Congress, top executives will now have to certify
their financial statements with their own signatures. False reporting could
lead to jail.
It seems that our more serious men in Washington want to bolster
the rule of law by strengthening the incentive to choose right from wrong.
Incentives matter. If you tax something more, you get less of it. If you tax
something less, you get more of it. A 10-year jail term for rotten corporate
apples -- or their accountants -- is a huge legal tax on wrongful actions.
Of course, standing behind higher ethical standards in business
is the great American investor class. Covering over 50 percent of American
households and more than 80 million people, this group is positively
changing financial practices and the political culture. These shareholders
have lost enormous wealth, in part from dishonest accounting and egocentric
corporate misdeeds. And they're furious.
Financial markets have been democratized in the past 15 years
with the rise of this investor class. They have already voted to depress the
stock market as a signal of their indignation, and they're now prepared to
vote this November against the silly politicians who fail to realize the
enormity of the current problem. Consider this: Slightly more than 60
percent of the investor class voted in the last election. This may be the
most powerful lobby in America.
In no uncertain terms, this new political movement is forcing
Washington to renew the rule of law, strengthen accounting and financial
standards across the board, and restore a proper incentive system that will
return Adam Smith's ethical epicenter to the greatest wealth-creating
machine in all of history. The days of egocentric and corrupt Soviet-style
corporatism have come to an end. In the stock market, moral amnesia is dead.