Monday, December 04, 2006
Capital Markets Cabal Plots To Roll Back Sarbanes-Oxley
The Committee on Capital Markets Regulation has issued a report that recommends rolling back elements of the Sarbanes-Oxley Law as well as many SEC restrictions. Their rationale is that excessive regulatory controls on - and prosecution against - the behavior of corporate boards and executives has deterred foreign investment. (We mustn't scare off those Saudi oil sheiks, now must we?) The report has raised a furor among investor groups and consumer protection advocates, who point out that the CCMG has significant connections to major corporate players, and that its recommendations are far from objective. For instance, CCMG has received $500,000 in contributions from the C.V. Starr Foundation, which has ties to former AIG CEO Hank Greenberg, who was fired last year for corporate malfeasance and is now facing charges in New York State. CCMG has also received contributions from private investor Wilbur Ross, Citadel Investment Group executive Kenneth Griggin, and former Goldman Sachs chairman Henry Paulson. Barbara Roper of the Consumer Federation of America believes that "the capital markets group had preordained its conclusions and carefully selected statistics to make its case..."
Shaking his head at the cruel irony of it all, Ralph Nader reminds us that the CCMG's report "is recommending less law enforcement and accountability after years of Republican regimes addicted to de-regulation." He decries changing the laws to cater to the lower standards of other nations, claiming that CCMG "wants to make lower standards overseas an argument for starting a race to the bottom, in order for the U.S. markets to remain 'competitive'." Mr. Nader describes several of the recommendations, which appear below.
1) CCMG wants to limit the ability of state and local governments to prosecute cases of financial fraud. Mr. Nader quotes Eliot Spitzer, himself no stranger to the prosecution of corporate crime, "To eviscerate the power of the one set of regulators who did anything is absurd."
2) CCMG wants governments to prosecute only the culpable executives, not sue the corporations they work for. Mr. Nader claims that this will result in scapegoating within the corporate power structure, in which lesser executives may be persuaded to accept the role of "fall guy" for the crimes of their superiors. (However, I personally agree that the focus of such prosecutions should be on the criminals, not on the company. I believe this focus intensifies the public shame of the perpetrators, while punishing the corporation only hurts the shareholders.)
3) CCMG wants to require more stringent proof that an executive had actual knowledge of the crime for which he is charged. The end result of raising the bar on such "proof" is that it would make it easier for culpable CEOs to get off just by saying, "I don't know." This, if anything, plays into the hands of scapegoaters who would sacrifice subordinates for the crimes of their superiors. After all, they would be the ones to whom the dirty work was delegated.
4) CCMG wants to weaken Sarbanes-Oxley, which mandated closer regulation and fuller disclosure of executive compensation and board activity. CCMG wants to change section 404 on internal accounting controls in particular - reducing the restrictions for foreign companies to the same standards applied in their native countries. This would only serve to relinquish such control altogether over foreign-owned businesses - including pseudo-foreign-owned "shell companies" that would undoubtedly be set up by American multinationals to take deliberate advantage of relaxed local standards.
5) CCMG wants stricter "cost-benefit analysis" on any new SEC rules. As Mr. Nader says, this is a "time-dishonored technique of producing endless delays in issuing any rules" - i.e., just more red tape that would buy time for corporations seeking to elude regulation.
6) CCMG wants shareholder approval for any "poison pill" defenses against corporate takeovers. This would seem to enhance shareholder power, but would instead only inhibit crucial corporate survival tactics and make hostile takeovers much, much easier. CCMG's true attitude toward shareholder power is reflected in its opposition to "giving shareholders the power to vote on...gargantuan executive compensation packages that often amount to looting company assets..."
7) CCMG wants to cap liability for auditors, if not give them total immunity. Making this change would, for instance, exonerate accounting firms that abet perpetrators of major financial scandals like those at Enron and WorldCom.
As consumer advocate Barbara Roper notes about these and other recommendations, "If you take every single step on their lists, you would have made it significantly more difficult to hold corporate criminals accountable for their crimes."
"Report on Corporate Rules Is Assailed" from The Washington Post
"The Big Boys Of Corporate Crime" from Counterpunch
"How Independent Was the Committee on Capital Markets Regulation?" from Economist's View