CEOs, the administration, and fraud! Oh My!

This is a fitting post for Halloween given the scary proposals being leaked. 

In the last six years, the corporate landscape has been overrun by weeds of corporate corruption and fraud, including criminal complaints against executives at WorldCom, Healthsouth, Adelphia and, of course, Enron. In 2002, even President Bush declared he was leading the charge to clean up the corporate landscape.

But corporate leaders and the Bush administration hope the American public has a short memory. Recent articles in the New York Times and Austin American Statesman detail how two new groups with very close ties to the Bush administration are trying to roll back many of the recently enacted protections.

One of the groups was recently led by Robert Steel, who was sworn in last week as the Treasury secretary for domestic finance, and who will now be responsible for helping formulate the administrations policies on corporate regulation. The other group’s leaders include Glenn Hubbard, former chairman of President Bush’s Council of Economic Advisors, and Don Evans, Bush’s former Commerce secretary.

Among these groups’ proposals, planned to be rolled out after the November elections, are plans that would limit civil liability of companies and executives (including forcing some shareholder claims to arbitration, which is more favorable to corporations), and plans that would make it harder for prosecutors to bring criminal cases against individuals and companies.

Frankly, it is shocking that business leaders would have the gall to request the changes while thousands of people continue to suffer from the Enron collapse and while the Enron cases continue to wind themselves through the court system.  That the administration, while maintaining their “tough on fraud” stance, is seriously considering these changes is equally appalling. 

Perhaps even more disturbing than the actual changes is the proposed method of the changes. Realizing that many of these changes likely would not be approved by Congress, they are being drafted so that the administration could implement them through SEC rulemaking or changes in enforcement policies at the Justice Department. One of the leaders even admitted to the Times that most changes were being proposed through regulation because “the current political environment is simply not ripe for legislation.” These type of back room regulations are but one more example of the administration’s willingness to usurp the authority of the legislative branch by changing the rules or refusing to enforce laws they don’t like.

Our government is founded on a system of checks and balances.  It is troubling when one branch decides they are above the other and seek to circumvent approval from the other branches by seeking out loopholes.  It is a dangerous precedent that should concern us all.

In fact, the proposals themselves demonstrate the dangers.  One of the proposals would require the SEC to initiate many types of lawsuits that are currently brought by private attorneys around the country.  If that happened, then the administration could coopt the protections left by regulating when (and if) the rules are enforced.  While this may sound far-fetched, remember that the groups are trying to initiate the proposed reforms by changing the way current bills are enforced.  It is not a stretch to imagine the SEC making its own decisions or even being ordered to only enforce the rules in strict situations.  As it stands today, private attorneys act as safety valves standing ready to enforce the law regardless of who controls the SEC.