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March 13, 2002
Bush Plan on Corporate Responsibility Criticized as Vague, Unenforceable
    by William Baue

Critics slam President Bush's ten-point plan on corporate responsibility for lacking specifics, penalties, budget support, and consideration of corporate social responsibility.


Last Thursday, President Bush unveiled a ten-point plan to "Improve Corporate Responsibility and Protect America's Shareholders." He announced several of these points in a speech at the Malcolm Baldrige National Quality Award Ceremony, which honors companies for sound business practices. He alluded to, but did not name, the Enron debacle as a primary motivator of his plan.

"America is ushering in a responsibility era; a culture regaining a sense of personal responsibility," said President Bush, garnering applause from the audience. "And this new culture must include a renewed sense of corporate responsibility."

The audience similarly applauded several of the plan's specific provisions, including its call for CEOs to personally vouch for the veracity of their companies' public disclosures, and the disallowance of executives to profit from erroneous financial statements. They also applauded the barring of executives who abuse their power from holding corporate leadership positions, and the requirement that executives disclose personal transactions of company stock within two days.

Applause did not greet President Bush's plan outside this gathering, however. Congressional Democrats questioned the efficacy of a proposal that lacks penalties. Two Columbia University professors noted the absence of specific provisions in the plan. And the Consumer Union, publisher of the non-profit Consumer Reports, doubted that the plan would improve protection for investors.

In addition to these external challenges, contradictions exist within the plan, and within the Administration's actions.

"And today, I call upon the Securities and Exchange Commission to take action," said President Bush in his speech. "Existing regulations should be clearer; penalties for wrongdoing should be tougher. Reform should improve investor confidence and help our economy to flourish and grow."

However, the explication of the President's plan, posted on the White House's website, points out that only one proposal would require a change in legislation, making it unclear how the plan would toughen penalties.

On the same day the President announced his plan, Harvey Pitt, the Bush-appointed chairman of the Securities and Exchange Commission (SEC), testified before the Senate on appropriations for fiscal 2003. Mr. Pitt pointed out that the Bush administration's proposed budget of $467 million allowed for "zero growth" in staffing at the SEC.

"If the SEC remains at its current staffing level, the agency will be required to continue to divert resources from other program areas to meet our enforcement needs and to address the additional initiatives we are undertaking to improve financial reporting and disclosure," Mr. Pitt testified.

Mr. Pitt asked for a $15 million budget increase to pay additional staff, such as 35 accountants and lawyers in the Division of Enforcement to handle the nearly three-fold increase in reports of financial fraud since Enron declared bankruptcy. Mr. Pitt also testified that the SEC would need an additional $76 million to achieve pay parity with other regulatory agencies, a key incentive for retaining productive employees.

Mallen Baker, the development director for the London-based corporate social responsibility organization Business in the Community, pointed out yet another gap in the Bush plan.

"What Bush failed to do was to engage with the developing thinking of CEOs themselves in this area [of corporate responsibility]," said Mr. Baker. "As such [the Bush plan] represents a missed opportunity . . ."

Mr. Baker cited PricewaterhouseCoopers' recently released survey of CEOs from around the world, Uncertai n Times, Abundant Opportunities, which found that nearly 70 percent of CEOs consider corporate social responsibility "vital" to profitability. In addition, 84 percent of CEOs worldwide believe in a company's obligation to act responsibly toward all company stakeholders, whether or not legal regulations require such consideration.

"That last item is the nub of the difference [between the CEOs survey and the Bush agenda]," said Mr. Baker. "A company which has a duty to act responsibly towards all stakeholders cannot have a primary purpose which is to generate returns at any cost."

While CEOs internationally recognize the importance of corporate social responsibility, the Bush plan remains essentially silent on this issue, focusing instead on financial accountability. This oversight, in addition to the lack of teeth and resource support for the new ten-point plan, would seem to indicate that the Bush Administration favors not stronger corporate responsibility, but business as usual.

 

 
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