Posted on: Wednesday, July 10, 2002

EDITORIAL
Corporate crime: Bush is unconvincing so far

President Bush is absolutely correct in anticipating that Americans expect him to act quickly and decisively to restore the credibility of a corporate culture that is quickly coming to rival the 19th-century robber barons for notoriety.

He was right when he told Wall Street yesterday that the mushrooming corporate scandals threaten economic recovery and the financial well-being of workers.

Bush's speech was striking for the harshness of the criticism he leveled at corporate executives — including some of the biggest contributors to his presidential campaign. It stands in stark contrast to his tone in the presidential campaign two years ago when he urged less government intervention in the economy so that American business would be free to innovate.

But his proposals yesterday failed to match his tone. He asked for increased funding for the Securities and Exchange Commission, which compares favorably to his first budget, which reduced SEC enforcement positions, but is less than one-third the sum now proposed by senators.

Such modest funding makes talk of "financial crimes SWAT team" just that — talk.

Bush's proposal to double the maximum prison term for mail and wire fraud means little in practice, securities lawyers say, and is far weaker than a Senate proposal — which Bush hasn't endorsed — to create a new felony for any "scheme or artifice" knowingly used to defraud shareholders.

Indeed, Bush finds himself with a huge credibility deficit in promising to reform American's boardrooms. Nor is the greatest part of that challenge the whiff of hypocrisy in his thus-far lame defense of his own performance a decade ago as a corporate director in failing to disclose a hasty stock sale.

Far more damaging is his party's record in recent years of systematic attack and destruction of many of the safeguards put in place by Franklin D. Roosevelt in the wake of the corporate misbehavior in the 1920s.

A centerpiece of Newt Gingrich's Contract With America was "securities reform." Passed in 1995 over President Clinton's veto, the bill shielded outside accountants and law firms from liability for false corporate reporting, and made it more difficult for shareholders to bring suit against fraudulent reporting.

A flood of corporate misstatements has followed, with nearly 1,000 companies restating misleading reports in the past five years.

Any honest attempt at reform, in other words, must begin with an undoing of what his party has claimed as among its greatest triumphs. That won't by easy.