- The Washington Times - Sunday, September 23, 2007

ANALYSIS/OPINION:

“If we don’t cheat, we can’t compete.” Is this the new credo of American business? One wonders after listening to the whining of some in the business community who insist they can’t compete in the marketplace unless they can avail themselves of the cheap labor of illegal aliens.

Then there are the prohibited “protection payments” paid by Chiquita Banana to Columbian drug lords to ensure that business runs smoothly in the Southern Hemisphere. And, of course, there are bribes paid to some of Capitol Hill’s finest to ensure that the payers thereof receive the government’s largess, thereby improving their “market share” of your tax dollars.

And who can forget the likes of Bernie Ebbers, Jeff Skilling and Ken Lay — moguls who made millions through deception and duplicity while ordinary Americans lost their shirts buying stock in companies like WorldCom and Enron. The motive — greed. The means — banks, accountants and lawyers who knowingly and willfully cooked up sham transactions to make it appear the high-flying, publicly traded companies appeared fiscally sound when, in reality, they were on the ropes financially. Everybody cooks the books — right? That’s what it takes to compete in the arena we call Wall Street. So they say.

The effects of the loss of honesty and integrity in the marketplace were painfully obvious recently when I appeared at a press conference in Washington D.C. with victims of the Enron scandal. Their stories were heartbreaking.

I watched as Charles Prestwood, an Enron retiree, explained with trembling lips how he lost all of his retirement savings — $1 million — when he was locked out of his account as his Enron stock crashed. George Maddox, a 74-year-old retiree who worked for Enron and its predecessor for 30 years, lost his entire life savings when Enron imploded. Others told similar stories. Their plans for retirement were dashed, as were the dreams of thousands of others when the truth about Enron was revealed. The strain of their ordeal was written on the faces of these men and their wives.

The victims of this scheme came to Washington seeking justice. When they sued Enron’s bankers, accountants and lawyers who were enablers of the scheme, to recover their losses, they were victimized by the courts.

Their case was thrown out on a legal technicality. A federal appeals court ruled they couldn’t collect from those who merely aided, abetted and enabled the scheme. They could only recover from the “primary” actors, though nothing was left to recover. Never mind that it appears from the pretrial testimony of Andrew Fastow, former Enron chief financial officer, that the “collateral” defendants didn’t merely drive the getaway car; some appear to have masterminded the scheme.

After all this, the Securities and Exchange Commission asked the Bush administration to file a “friend of the court” brief in a related case soon to be heard in the Supreme Court. That case involves similar issues and will determine the viability of the Enron victims’ claims. The SEC wanted Mr. Bush to come down on the side of the investors. Astonishingly, however, the solicitor general declined to file the requested brief, and this administration weighed in largely on the side of the banks, who are accused of facilitating the scheme.

It seems Treasury Secretary Henry M. Paulson Jr., a former investment banker(!), appealed to Mr. Bush to forbear filing a brief siding with the victims because “scheme liability” for investment bankers and the like could impair their competitiveness in the marketplace.

Dishonest business practices don’t just hurt those on the receiving end of the scheme. Victor Thompson, President of Bulwark Capital Corp. and former head of the Global Fixed Income Group at State Street Global Advisors in Boston, has rightly noted in his article, “Ethics in Business Leads to Prosperity,” (see Forum at www.ajustsociety.org):

“Ethical conduct attracts capital, and capital allows for wealth-producing investment. In the global economy, capital is mobile and risk is priced. As investors perceive more risk of being cheated, they will charge more for others to use their capital and likely offer less of it. Therefore, investors have good reason to seek out countries with less corruption.”

If American businesses are seen as corrupt, that will adversely affect our nation’s ability to attract capital. That, in turn, will blunt our ability to compete in the global marketplace. America simply cannot maintain its position of economic pre-eminence in the global economy if investors can’t trust America’s businesses.

President Bush, in the past, has understood the importance of accountability and honesty in business. In a Wall Street speech, he said to America’s business leaders, “You need to show the world that American businesses are a model of transparency and good corporate governance.” In his 2002 State of the Union address, he said, “corporate America must be made accountable to employees and shareholders and held to the highest standards of conduct.” Sadly, the Bush administration now seems to take a different view.

In 1530, Martin Luther admonished his congregants in a sermon, “Everyone should conduct his trade, craft and business in such a way that he overcharged no one, cheats no one with false wares, is satisfied with a fair profit, and gives people something worthwhile for their penny.” Luther’s admonition is still good advice in the 21st century. America’s CEOs would do well to heed his words, and Mr.Bush to reflect on them as he ponders the course he will take in the Supreme Court.

A just society understands and affirms the importance of accountability and responsibility. The two run hand in hand. If we fail to hold wrongdoers accountable for the consequences of their actions, their wrongdoing will increase. Wrongdoers should be fully accountable for compensating their innocent victims for the damages suffered as a consequence of their wrongdoing. Absent such accountability, America and the world will lose confidence in America’s markets and our pre-eminent role in the world economy will pass to someone else.

KEN CONNOR

Chairman of the Center for a Just Society.

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