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
"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.
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.