A New Ethic of Corporate Responsibility (Summary)
For Immediate Release
Office of the Press Secretary
July 9, 2002
Summary: A New Ethic of Corporate Responsibility
A New Ethic of Corporate Responsibility
Today in New York President Bush will call for a new ethic of responsibility in America's corporate community. The President wants to expose and punish acts of corruption, move corporate accounting out of the shadows, and protect small investors and pension holders. The President will unveil tough new criminal penalties and enforcement provisions to punish those who refuse to play by the rules and threaten to undermine the integrity of our financial markets:
1. The President will sign an Executive Order creating a Corporate Fraud Task Force to provide direction for investigations and prosecutions of criminal activity. The Task Force will provide oversight and enable improved inter-agency coordination of civil and criminal investigations.
2. The President proposes doubling the maximum prison term for mail fraud and wire fraud to ten years (mail fraud and wire fraud statutes are often used in cases involving corporate wrongdoing).
3. The President calls on the U.S. Sentencing Commission to enhance prison time for criminal fraud when committed by corporate officers and directors.
4. The President proposes strengthening laws that criminalize document shredding and other forms of obstruction of justice.
5. The President proposes new provisions to strengthen the ability of the Securities and Exchange Commission (SEC) to freeze improper payments to corporate executives while a company is under investigation.
6. The President calls on public companies' compensation committees to prevent corporate officers from receiving loans from their companies.
7. The President challenges CEOs to comply with the spirit of existing disclosure rules by explaining how their compensation packages are in the best interests of their companies' shareholders, and describing in plain English in their companies' annual reports every detail of their compensation packages.
8. The President urges Congress to take immediate action to pass the $20 million funding increase requested earlier this year so that the SEC can hire 100 new enforcement officers. The President also urges Congress to provide an additional $100 million in FY 2003 to enable the SEC to hire more enforcement officers and provide them with state-of-the-art technology. The new funds -- combined with the President's proposed FY 2003 budget -- represent more than a 20 percent increase for the SEC in FY 2003.
9. The President calls on the nation's stock markets to require that a majority of a company's directors be truly independent so that they have no material relationship with the company. The President also calls for all members of a company's audit committee, nominating committee, and compensation committee to be truly independent.
10. The President calls on the nation's stock markets to require listed companies to receive shareholder approval for all stock option plans.
The Administration's Strong Record of Enforcement & Reform
1. DOJ prosecuted Arthur Anderson for obstruction of justice and the firm was found guilty.
2. On June 27, the SEC issued an order requiring CEOs and CFOs of the largest companies (947 companies, each with annual revenues in excess of $1.2 billion) to personally re-certify the accuracy, fairness and completeness of their disclosures through the prior fiscal year.
3. Since the President unveiled his reform agenda on March 7, the SEC has sought the disgorgement of compensation and trading profits, including bonuses and stock options, in four new cases -- equal to the number of cases that were brought during all of last year.
4. The SEC has already sought 54 officer and director bars in court proceedings in the first eight months of this fiscal year -- 40% more than were sought in fiscal year 2000.
5. On June 20 the SEC proposed strong new rules to create an independent regulatory board to oversee the accounting industry and see that the accounting profession is held to the highest ethical standards.
6. The SEC has proposed new rules that require companies to disclose their "critical accounting" choices in their public filings.
7. The SEC has proposed new rules will to accelerate the filing deadlines for quarterly reports (45 days to 30 days) and annual reports (90 days to 60 days).
8. The SEC has proposed rules to more than triple the list of items that must be reported between filing periods -- including insider sales of stock, loans made to executives by companies, departures of the company's executives and gain or loss of material customers.
9. The SEC has proposed rules to require corporate executives to personally vouch for their companies' public disclosures.
10. The SEC has proposed rules to require that most corporate director and officer transactions in their companies' securities and other financial instruments must be filed within two business days. Currently, corporate insiders are not required to file reports of their activities in their company's stock for periods of up to 410 days.
11. The SEC is seeking to require that all public companies have independent audit committees that will have the sole responsibility of hiring, firing and retaining independent auditors.
12. The SEC is drafting rules that will ban all non-audit services, unless approved in advance by an independent audit committee of the board of directors. The SEC is also seeking to improve disclosure rules so that investors can have a better understanding of the fees paid to auditing firms and their affiliates.
The President's Comprehensive Corporate Reform Agenda
Today's tough new enforcement initiatives build on the 10-point reform plan the President announced in March. The President has an aggressive corporate reform agenda:
1. Expose and punish acts of corruption;
2. Hold corporate officers more accountable;
3. Protect small investors and pension holders;
4. Move corporate accounting out of the shadows;
5. Develop a stronger and more independent corporate audit system; and
6. Provide better information to investors.
Exposing and Punishing Acts of Corruption --
Holding Corporate Officers More Accountable
The Administration will use the full weight of the law to expose and punish corruption. Corporate officers hold offices of high trust and they should face stiffer penalties when they break the law. Corporate leaders who violate the public trust should never be given that trust again. The President proposes to:
1. Double the maximum prison term for mail fraud and wire fraud to ten years, and increase the prison time served for fraud committed by corporate leaders.
2. Create a new Corporate Fraud Task Force to increase DOJ's ability to oversee and coordinate the investigation and prosecution of fraud and related criminal activity.
3. Empower the SEC to freeze improper payments to corporate executives while a company is under investigation.
4. End the practice of allowing corporate officers to receive loans from their companies.
5. Prevent CEOs or other officers from profiting from erroneous financial statements.
6. Ensure that CEOs or other officers who clearly abuse their power lose their right to serve in any corporate leadership positions.
7. Require corporate leaders to tell the public promptly whenever they buy or sell company stock for personal gain.
8. Strengthen laws that criminalize document shredding and other forms of obstruction of justice.
9. Challenge CEOs in America to fully comply with the spirit of existing SEC rules by explaining prominently and in clear English why their compensation packages are in the best interests of their companies.
10. Strengthen the SEC by seeking an additional $100 million in FY 2003 for the SEC to help hire more enforcement agents and improve other prosecutorial activities.
Corporate Accounting out of the Shadows
The investing public needs a true, fair, timely and accurate picture of the assets, liabilities and income of publicly-traded companies. Greater transparency will expose bad companies and protect the reputations of good ones. Firms must attract investment by demonstrating their strengths, not by hiding their weaknesses.
1. An independent regulatory board should ensure that the accounting profession is held to the highest ethical standards.
2. CEOs should personally vouch for the veracity, timeliness, and fairness of their companies' public disclosures, including their financial statements.
3. Firms' accounting systems should be compared with best practices, not simply against minimum standards.
Protecting small investors and pension holders
& Improving Investor Information
More than 80 million Americans own stock and many of them are new to the market. Buying stock gives Americans the opportunity to build wealth over the long term and create brighter futures for themselves and their families. To encourage stock ownership, we must make sure that analysts give honest advice, based on honest accounting, and honest and timely information. In addition, employees should be afforded protections in the administration of their 401(K) plans so that they have meaningful information, flexibility and confidence in their holdings.
1. Financial statements, annual reports, and other critical disclosure documents must be written in a straightforward, easily understandable form.
2. Each investor should have prompt access to critical information.
3. Each investor should have quarterly access to the information needed to judge a firm's financial performance, condition, and risks.
4. Investors should have complete confidence in the independence and integrity of companies' auditors.
5. The authors of accounting standards must be responsive to the needs of investors.
6. Employees should be able to sell their company's stock and diversify into other investment options after 3 years of holding stock in their 401(K) plans.
7. Employees should be able to get sound advice on investing and diversifying their 401(K) accounts.