President Announces Tough New Enforcement Initiatives for Reform
Remarks by the President on Corporate Responsibility
Regent Wall Street Hotel
New York, New York
THE PRESIDENT: Thank you all. Thank you very much for that warm
welcome. I'm pleased to be back in New York City. New York City is a
unique symbol of America's creativity and character and resilience. In
the last 10 months, New Yorkers have shown a watching world the true
spirit of your city. (Applause.) A spirit that honors the loss,
remembers its heroes, and goes forward with determination and with
confidence.
People of this city are writing one of the greatest chapters in our
nation's history, and all Americans are proud of New York. (Applause.)
I've come to the financial capital of the world to speak of a
serious challenge to our financial markets, and to the confidence on
which they rest. The misdeeds now being uncovered in some quarters of
corporate America are threatening the financial well-being of many
workers and many investors. At this moment, America's greatest
economic need is higher ethical standards -- standards enforced by
strict laws and upheld by responsible business leaders.
The lure of heady profits of the late 1990s spawned abuses and
excesses. With strict enforcement and higher ethical standards, we
must usher in a new era of integrity in corporate America.
I want to thank Bill for his introduction. There's nothing like
being recycled. (Laughter and applause.) But thanks for having me.
I'm honored to meet your family and Uncle Jack. (Laughter and
applause.)
I appreciate very much Secretary O'Neill and Secretary Evans
traveling with me today. I want to thank the members of the New York
delegation, Senators Schumer and Clinton, as well as Congressman
Fossella and Congressman Rangel. I appreciate so very much the Mayor
-- my friend, the Mayor, for being here to greet me as I came in on
the chopper. Thank you, Mr. Mayor, and thanks for the great job you're
doing for New York. (Applause.)
I'm honored that Cardinal Egan is here. And I appreciate so very
much seeing John Whitehead, the Chairman of the Lower Manhattan
Development Corporation. And thank you all for coming, as well.
The American economy -- our economy -- is built on confidence.
The conviction that our free enterprise system will continue to be the
most powerful and most promising in the world. That confidence is
well-placed. After all, American technology is the most advanced in
the world. Our universities attract the talent of the world. Our
workers and ranchers and farmers can compete with anyone in the world.
Our society rewards hard work and honest ambition, bringing people to
our shores from all around the world who share those values. The
American economy is the most creative and enterprising and productive
system ever devised. (Applause.)
We can be confident because America is taking every necessary step
to fight and win the war on terror. We are reorganizing the federal
government to protect the homeland. We are hunting down the terrorists
who seek to sow chaos. My commitment, and the commitment of our
government, is total. We will not relent until the cold-blooded
killers are found, disrupted, and defeated. (Applause.)
We can be confident because of the amazing achievements of American
workers and entrepreneurs. In spite of all that happened last year,
from the economic slowdown to the terrorist attack, worker productivity
has grown by 4.2 percent over the last four quarters. In the first
quarter of 2002, the economy grew at an annual rate exceeding six
percent. Though there's much work left to do, American workers have
defied the pessimists and laid the foundation for a sustained
recovery.
We can be confident because we're pursuing pro-growth reforms in
Washington, D.C. Last year we passed the biggest tax cut in a
generation, which encouraged job creation and boosted consumer spending
at just the right time. For the sake of long-term growth, I'm asking
Congress to make the tax reductions permanent. I'm asking Congress to
join me to promote free trade, which will open new markets and create
better jobs and spur innovation. I ask Congress to work with me to
pass a terrorism insurance bill, to give companies the security they
need to expand and to build. (Applause.) And I will insist on --
and, if need be, enforce -- discipline in federal spending, so we can
meet our national priorities without undermining our economy.
We have much to be confident about in America. Yet our economy and
our country need one more kind of confidence -- confidence in the
character and conduct of all of our business leaders. The American
economy today is rising, while faith in the fundamental integrity of
American business leaders is being undermined. Nearly every week
brings better economic news, and a discovery of fraud and scandal --
problems long in the making, but now coming to light.
We've learned of some business leaders obstructing justice, and
misleading clients, falsifying records, business executives breaching
the trust and abusing power. We've learned of CEOs earning tens of
millions of dollars in bonuses just before their companies go
bankrupt, leaving employees and retirees and investors to suffer. The
business pages of American newspapers should not read like a scandal
sheet.
The vast majority of businessmen and women are honest. They do
right by their employees and their shareholders. They do not cut
ethical corners, and their work helps create an economy which is the
envy of the world.
Yet high-profile acts of deception have shaken people's trust. Too
many corporations seem disconnected from the values of our country.
These scandals have hurt the reputations of many good and honest
companies. They have hurt the stock market. And worst of all, they
are hurting millions of people who depend on the integrity of
businesses for their livelihood and their retirement, for their peace
of mind and their financial well-being.
When abuses like this begin to surface in the corporate world, it
is time to reaffirm the basic principles and rules that make capitalism
work: truthful books and honest people, and well-enforced laws against
fraud and corruption. All investment is an act of faith, and faith is
earned by integrity. In the long run, there's no capitalism without
conscience; there is no wealth without character.
And so again today I'm calling for a new ethic of personal
responsibility in the business community; an ethic that will increase
investor confidence, will make employees proud of their companies, and
again, regain the trust of the American people.
Our nation's most respected business leaders -- including many
gathered here today -- take this ethic very seriously. The Business
Roundtable, the New York Stock Exchange, the NASDAQ have all proposed
guidelines to improve corporate conduct and transparency. These
include requirements that independent directors compose a majority of a
company's board; that all members of audit, nominating, and
compensation committees be independent; and that all stock option plans
be approved by the shareholders. I call on all the stock markets to
adopt these sensible reforms -- these common-sense reforms -- as
soon as possible.
Self-regulation is important, but it's not enough. Government
cannot remove risk from investment -- I know that -- or chance from
the market. But government can do more to promote transparency and
ensure that risks are honest. And government can ensure that those who
breach the trust of the American people are punished.
Bold, well-considered reforms should demand integrity, without
stifling innovation and economic growth. From the antitrust laws of
the 19th century to the S&L; reforms of recent times, America has
tackled financial problems when they appeared. The actions I'm
proposing follow in this tradition, and should be welcomed by every
honest company in America.
First, we will use the full weight of the law to expose and root
out corruption. My administration will do everything in our power to
end the days of cooking the books, shading the truth, and breaking our
laws.
Today, by executive order, I create a new Corporate Fraud Task
Force, headed by the Deputy Attorney General, which will target major
accounting fraud and other criminal activity in corporate finance. The
task force will function as a financial crimes SWAT team, overseeing
the investigation of corporate abusers and bringing them to account.
I'm also proposing tough new criminal penalties for corporate
fraud. This legislation would double the maximum prison terms for
those convicted of financial fraud from five to 10 years. Defrauding
investors is a serious offense, and the punishment must be as serious
as the crime. I ask Congress to strengthen the ability of SEC
investigators to temporarily freeze improper payments to corporate
executives, and to strengthen laws that prevent the destruction of
corporate documents in order to hide crimes.
Second, we're moving corporate accounting out of the shadows, so
the investing public will have a true and fair and timely picture of
assets and liabilities and income of publicly traded companies.
Greater transparency will expose bad companies and, just as
importantly, protect the reputations of the good ones.
To expose corporate corruption, I asked Congress four months ago
for funding to place 100 new enforcement personnel in the SEC. And I
call on Congress to act quickly on this request. Today I announce my
administration is asking Congress for an additional $100 million in the
coming year to give the SEC the officers and the technology it needs to
enforce the law. If more scandals are hiding in corporate America, we
must find and expose them now, so we can begin rebuilding the
confidence of our people and the momentum of our markets.
I've also proposed a 10-point Accountability Plan for American
Business, designed to provide better information to shareholders, set
clear responsibility for corporate officers, and develop a stronger,
more independent auditing system. This plan is ensuring that the SEC
takes aggressive and affirmative action.
Corporate officers who benefit from false accounting statements
should forfeit all money gained by their fraud. An executive whose
compensation is tied to his company's performance makes more money when
his company does well -- that's fine, and that's fair when the
accounting is above-board. Yet when a company uses deception --
deception accounting to hide reality, executives should lose all their
compensation -- all their compensation -- gained by the deceit.
Corporate leaders who violate the public trust should never be
given that trust again. The SEC should be able to punish corporate
leaders who are convicted of abusing their powers by banning them from
ever serving again as officers or directors of a publicly-held
corporation. If an executive is guilty of outright fraud, resignation
is not enough. Only a ban on serving at the top of another company
will protect other shareholders and employees.
My accountability plan also requires CEOs to personally vouch for
their firms' annual financial statements. Currently, a CEO signs a
nominal certificate, and does so merely on behalf of the company. In
the future, the signature of the CEO should also be his or her personal
certification of the veracity and fairness of the financial
disclosures. When you sign a statement, you're pledging your word, and
you should stand behind it.
And because the shareholders of America need confidence in
financial disclosures right away, the SEC has ordered the leaders of
nearly a thousand large public companies to certify that the financial
information they submitted in the last year was fair and it was
accurate.
I've also called on the SEC to adopt new rules to ensure that
auditors will be independent and not compromised by conflicts of
interest.
The House of Representatives has passed needed legislation to
encourage transparency and accountability in American businesses. The
Senate also needs to act quickly and responsibly, so I can sign a good
bill into law.
Third, my administration will guard the interests of small investor
and pension holders. More than 80 million Americans own stock, and
many of them are new to the market. Buying stock gives them an
opportunity to build wealth over the long-term, and this is the very
kind of responsible investment we must promote in America. To
encourage stock ownership, we must make sure that analysts give honest
advice, and pension plans treat workers fairly.
Stock analysts should be trusted advisors, not salesmen with a
hidden agenda. We must prevent analysts from touting weak companies
because they happen to be clients of their own firm for underwriting or
merger advice. This is a flat-out conflict of interest, and we'll
aggressively enforce new SEC rules against this practice -- rules
which take effect today.
And the stock markets should make sure that the advice analysts
give, and the terms they use, have real meaning to investors. "Buy"
should not be the only word in an analyst's vocabulary. And they
should never say "hold" when they really mean "sell."
Small investors should also not have to have the deck stacked
against them when it comes to managing their own retirement funds. My
pension reform proposal would treat corporate executives the same as
workers during so-called "blackout periods," when employees are
prohibited from trading in their accounts. What's fair for the workers
is fair for the bosses. (Applause.)
My reform proposal gives workers quarterly information about their
investments. It expands workers' access to sound investment advice,
and allows them to diversify out of company stock. The House has
passed these measures; I urge the Senate to do the same.
Tougher laws and stricter requirements will help -- it will
help. Yet, ultimately, the ethics of American business depend on the
conscience of America's business leaders. We need men and women of
character, who know the difference between ambition and destructive
greed, between justified risk and irresponsibility, between enterprise
and fraud.
Our schools of business must be principled teachers of right and
wrong, and not surrender to moral confusion and relativism. Our
leaders of business must set high and clear expectations of conduct,
demonstrated by their own conduct. Responsible business leaders do not
jump ship during hard times. Responsible leaders do not collect huge
bonus packages when the value of their company dramatically declines.
Responsible leaders do not take home tens of millions of dollars in
compensation as their companies prepare to file for bankruptcy,
devastating the holdings of their investors.
Everyone in a company should live up to high standards. But the
burden of leadership rightly belongs to the chief executive officer.
CEOs set the ethical direction for their companies. They set a moral
tone by the decisions they make, the respect they show their employees,
and their willingness to be held accountable for their actions. They
set a moral tone by showing their disapproval of other executives who
bring discredit to the business world.
And one of the principal ways that CEOs set an ethical tone is
through their compensation. The pay package sends a clear signal
whether a business leader is committed to teamwork or personal
enrichment. It tells you whether his principal goal is the creation of
wealth for shareholders, or the accumulation of wealth for himself.
The SEC currently requires the annual disclosure of a CEO's
compensation. But that information is often buried in long proxy
statement -- proxy statements, and seldom seen -- seldom seen --
by shareholders. I challenge every CEO in America to describe in the
company's annual report -- prominently, and in plain English --
details of his or her compensation package, including salary and bonus
and benefits. And the CEO, in that report, should also explain why his
or her compensation package is in the best interest of the company he
serves.
Those who sit on corporate boards have responsibilities. I urge
board members to check the quality of their company's financial
statements; to ask tough questions about accounting methods; to demand
that audit firms are not beholden to the CEO; and to make sure the
compensation for senior executives squares with reality and common
sense. And I challenge compensation committees to put an end to all
company loans to corporate officers.
Shareholders also need to make their voices heard. They should
demand an attentive and active board of directors. They should demand
truly independent directors. They should demand that compensation
committees reward long-term success, not failure. Shareholders should
demand accountability not just in bad times, but especially in boom
times, when accountability frequently breaks down. Shareholders are a
company's most important constituency, and they should act like it.
The 1990s was a decade of tremendous economic growth. As we're now
learning, it was also a decade when the promise of rapid profits
allowed the seeds of scandal to spring up. A lot of money was made,
but too often standards were tossed aside. Yet the American system of
enterprise has not failed us. Some dishonest individuals have failed
our system. Now comes the urgent work of enforcement and reform,
driven by a new ethic of responsibility.
We will show that markets can be both dynamic and honest, that
lasting wealth and prosperity are built on a foundation of integrity.
By reasserting the best values of our country, we will reclaim the
promise of our economy.
Leaders in this room help give the free enterprise system an
ethical compass, and the nation respects you for that. We need that
influence now more than ever. I want to thank you for helping to
restore the people's trust in American business. I want to thank you
for your love of the country. And I want to thank you for giving me
the chance to come and address you today. May God bless you all.
(Applause.)