Take a moment to savor the convictions of top Enron executives Ken Lay and Jeffrey Skilling. Anything short of those verdicts would have been outrageous. That’s especially true after a defense – “we did nothing wrong and didn’t know what was happening anyway” – that was more of the fraud that pumped Enron up, then brought it crashing down.
Keep in mind that Lay and Skilling aren’t anomalies in the corporate world. Besides the rogue’s gallery of CEOs already convicted or awaiting trial, new stories are breaking about self-enrichment and cover-ups in the corporate ranks.
A federal oversight agency reports more than a dozen executives and the board of Fannie Mae, the mortgage finance enterprise, were involved in misleading accounting tricks that generated more than half of the $90 million its CEO collected from 1998 to 2003. Meanwhile, federal regulators and prosecutors are investigating some 20 companies for backdating stock options for executives to their lowest point in the market, so they would be worth more when cashed in.
The problem, however, isn’t just these bad apples. It’s the barrel they’re in. No effective system exists to hold corporations accountable to the public, their workers or even their owners. This is partly the fruit of decades of governmental deregulation that entrenched a culture of unaccountability. Enron was a prime case, profiting not only from deregulation of energy markets but also deregulation by the Commodity Futures Trading Commission, just before its chairwoman Wendy Gramm – the wife of former Texas Republican Sen. Phil Gramm – joined Enron’s board.
But the rise in corporate crime also reflects the shift in American capitalism toward a short-term perspective of meeting quarterly targets. This shift stems from a financial mentality that rewards making profits by cooking books, exploiting tax loopholes, looting worker pension funds, pursuing strategically pointless mergers, speculating in complex financial derivatives and much more. Shady accounting to unjustly reward executives is just an extension of the financial shenanigans that accounting firms, lawyers and advisors devise as building blocks of today’s corporate strategy.
Exorbitant executive salaries are integral to this wholesale corruption. Investors in Home Depot have been outraged that CEO Robert Nardelli has pocketed $245 million over the past five years while its stock has declined and the value of its main competitor soared. Even worse, Nardelli ran roughshod over investors at the annual meeting recently, refusing to answer questions or even release shareholder vote details.
Many investors want to require that directors be elected by majority vote, that shareholders approve CEO pay packages and that executives give up pay and bonuses if received on the basis of inaccurate earnings statements. The Securities and Exchange Commission is considering some modest changes, and Rep. Barney Frank (D‑Mass.) is promoting broader legislation, The Protection Against Executive Compensation Abuse Act.
More openness and accountability to shareholders is a start. But it’s not just shareholders, including workers with pension funds, who lose from executive fraud. The direction of corporations becomes skewed, endangering their long-term viability and their contributions to the nation’s economic well-being. When companies like Enron set a standard for fraud, they hurt any company that is trying to compete fairly, thus encouraging foul play throughout the system. Executive overpayment fuels the growing inequality that deprives the vast majority of their fair share of national income.
Greater accountability to shareholders just isn’t enough. These public corporations must also be made more accountable to the public and to their employees. The rot is so pervasive that we need a new barrel as well as new apples.
David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing in 1976. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy.