Floyd Norris: Executive pity

NEW YORK Pity the oppressed boss. Suddenly there is a wave of sympathy for overregulated corporate executives. Not only are some going to jail, but the U.S. Securities and Exchange Commission is making them pay huge fines, even forcing bosses to repay bonuses they received while corporate books were being cooked. The SEC also wants to force more disclosure of executive compensation. The commission denies that the purpose is to hold down pay, but few bosses believe that. To hear some people tell it, corporate officers are being victimized in ways that can only inspire sympathy. The U.S. Chamber of Commerce is calling on the SEC to stop penalizing companies for refusing to cooperate in investigations and to give companies a break if they can show that some lawyer or accountant blessed the activity that the commission deems illegal. A new book by John Hasnas, a Georgetown University professor who teaches ethics to business students, is called "Trapped: When Acting Ethically Is Against the Law." It concludes that we would be better off if there were no criminal enforcement of laws requiring businesses to be honest. That book, published by the Cato Institute, features the following endorsement by Mark Levin, a radio talk-show host: "Did you know that in many ways the terrorists detained at Guantánamo Bay have more rights than corporate CEOs and their employees? If you want to know more, get John Hasnas's book." The book is not as ridiculous as the blurb. Hasnas does a good job of explaining the current state of criminal law for corporations, which have no constitutional right against self-incrimination, as well as U.S. Justice Department policies that offer leniency only to companies that cooperate by turning in employees. KPMG, the accounting firm, escaped criminal prosecution only by admitting wrongdoing and cutting off defense funds for its accused former partners. "We pressure the company to be part of the prosecution team," Hasnas said during an interview, and thereby violate the company's ethical responsibilities to employees who may be innocent. He conceded that his remedy - halting criminal prosecutions - might go too far. But he said he wanted to be provocative. Four years ago, as WorldCom was collapsing, President George W. Bush endorsed "corporate responsibility" and signed the Sarbanes-Oxley Act. One poll then found that about two- thirds of both Democrats and Republicans thought business leaders had low standards of honesty and ethics. Politicians and even journalists got better marks. But now, many hope to push aside the Sarbanes-Oxley requirements. An SEC advisory committee recommends that bosses of the small companies traded on the so-called bulletin board section of the over-the- counter market should not be asked to say whether their internal controls are adequate. Lawyers, including Kenneth Starr of Whitewater and Clinton administration fame, are pushing a suit to declare unconstitutional the law's system of regulating accountants. And some hope the SEC itself, under Christopher Cox as chairman, will rein in the enforcement division. They were encouraged when Cox publicly chastised the enforcement director, Linda Thomsen, for subpoenaing journalists without commission approval. It is not that they like journalists, but they would love to see the commissioners voting on every subpoena, offering new chances to delay and derail investigations. This campaign is possible because business now senses that investors no longer care so much. Daniel Burnham, the former chief executive of Raytheon, has reached a tentative settlement with the Securities and Exchange Commission to repay money he received based on nonexistent profits. But First Data says Burnham's behavior did not relate to "his conduct, judgment or integrity" as a First Data director, and so he will stay on that company's board. Next year, when both of the named authors of the Sarbanes-Oxley Act will be out of Congress, there is likely to be a legislative push. It will be called an effort to reduce the cost of compliance with Sarbanes-Oxley, but don't be surprised if the real goal is to make life easier for those who would bend the rules to make their companies look better.