The new corporate con: ethics law is killing us

Thursday, November 09, 2006 at 02:05 PM

Following up on the post r.e. attempts by business groups to weaken regulatory controls on Corporate Kings, here's a hell of a good candidate for Con of the Year:  the corporate types are crying and crying about how hard it is to comply with those silly things like the Sarbanes-Oxley law.

For example, Paul Lowengrub, Manager of Network Industries Strategies at FTI Economic Consulting offers up this litany of how the S-Ox law is just killing business with new costs:

Due to heightened political and legal risks associated with service as a CEO, CFO or board member, companies have been forced to increase compensation to lure executives into running a company under intense scrutiny.

Finding suitable individuals has become an expensive undertaking and the fees for an executive search must be shared by companies, investors and customers.

Companies additionally face increased legal fees because boards must hire outside lawyers and consultants for advice on their expanded role and help minimize risk.

Did you catch that first one?  The ludicrous CEO salaries aren't because these clowns virtually set their own salaries and have no conscience about the matter, perish the thought.  The unseemly salaries and compensation are because the poor little lambs are so unsettled about needing to be honest that the corporation has to pay them, and pay them, and pay them just to convince them to take on the impossible task of being honest.

Folks, the ethics laws and regs are not killing corporate America, but without those laws and regs, corporate America would be killing us.

It is the incredible power that CEOs wield over the information that outsiders get about the company that causes the danger, and S-Ox is only partially successful at addressing the problem.  But S-Ox is a necessary part of the solution:

Common sense dictates that eliminating employees of subsidiaries from coverage under the statute would eviscerate the whistle-blower statute and thoroughly undermine the law's stated goals. During congressional debate over Sarbanes-Oxley, Sen. Patrick J. Leahy, a Vermont Democrat, noted: "When sophisticated corporations set up complex fraud schemes, corporate insiders are often the only ones who can disclose what happened and why."

Corporate fraud thrives on secrecy. Sarbanes-Oxley can only combat that secrecy if companies cannot intimidate their workers into silence. It is the natural course of capitalism for smaller companies to keep being acquired by larger ones - which is why Congress surely intended for Sarbanes-Oxley to cover subsidiaries, lest more workers lose their protection, and threats to public welfare not be exposed.

The reason for the discussion of employees of corporate subsidiaries?  Because the corporate termites are chewing away at the foundation of one S-Ox provision that protects corporate whistleblowers.  They want the law interpreted as protecting only employees of the corporate entity committing the fraud; if the employee works for a subsidiary, no protection if they blow the whistle.

It does not take a genius to figure out that if they are successful in this getting courts to buy this laughable interpretation, they will then structure their business dealings so that very, very few employees work for the ultimate corporate parent where all the fraud originates.  Employment there will be limited to the inside circle of fraudsters.  Any potentially honest employee will work for a subsidiary at least one level below the fraud.

The result: anyone contemplating blowing a whistle will know they are on their own with no legal protection from the powerful people they are about to expose.

Good idea, don't you think?

Let's not forget how widespread corporate fraud really is in this country.  It doesn't involve only a "few bad apples" any more than the torture at Abu Ghraib did.  Even without getting into the scandal over backdated stock options, which has yet to really break into the MSM, there have been accounting, record keeping, or other types of  fraud scandals, for example, at:

Global Crossing
Tyson Foods
General Mills
Ahold NV
Morgan Stanley
Goldman Sachs
Deutsche Bank Securities
Salomon Smith Barney
U.S. Bancorp Piper Jaffray
Merrill Lynch
McAfee, Inc

And hundreds, if not thousands, of others have come clean by "restating" their financials before the SEC or anyone else got around to investigating them.

Disingenuousness is a very ugly thing in the hands of well dressed and sell educated charlatans who have sold their consciences for bigger estates and bigger parties.

Long live S-Ox and lets make it stronger!