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Shades of gray dim Bush's speech

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By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times
published July 10, 2002


Heard the latest flap over the director of a public corporation who sold his shares for $848,560 just before the company reported heavy losses? This same director served on the company's audit committee, which okayed how to count the sale of a subsidiary. But the SEC later forced the company to restate its books to reflect $10-million in losses hidden by that sale.

Not again. Is this another self-serving deal at WorldCom? More shenanigans at Enron or Merck?

Wait a minute. That director was President Bush. As a board member of Texas-based Harken Energy in 1990, he sold his shares in the company just two months before Harken declared an unexpectedly large loss of $23-million. Bush did not officially disclose his stock sale for 34 weeks, long after a deadline for insiders set by the SEC.

Bush's explanations? "I still haven't figured it out completely," he said this week of his disclosure delay 12 years ago. And what about the SEC demanding that Harken redo its iffy accounting? "In the corporate world," Bush said, "sometimes things aren't exactly black and white when it comes to accounting procedures."

Harken is no Enron. But Bush's shades-of-gray responses this week are hardly the clear, crisp answers the nation needs from a leader, even one so strongly backed in the fight against terrorism, just as he's about to tell U.S. business to shape up.

It's all about credibility. The revival of these less-than-stellar events at Harken is one reason the president hit more of a single than a home run Tuesday in what the White House billed as a major presidential speech about corporate responsibility.

In long-anticipated remarks to a Wall Street audience in New York, Bush called for more of an "ethical compass" from corporate America, tougher SEC oversight, more jail time for corporate fraud and the immediate creation of a federal "financial crimes SWAT team" to root out wrongdoing.

Still, Bush's remarks were long on pep talk and short on get-tough specifics.

"All investment is an act of faith, and faith is earned by integrity," he waxed. "In the long run, there is no capitalism without conscience, there is no wealth without character." Bush then called for "a new ethic of personal responsibility in the business community."

It all sounds good -- heck, anything that helps smack some reality back into self-indulgent executives sounds great at this point. But Bush's actual recommendations seem skewed toward punishing corporate fraud, rather than preventing more of it. And many of his proposals appear weaker than many already under consideration in Congress.

"The Bush plan offers too little, too late," says consumer advocate Doug Heller of the Foundation for Taxpayer and Consumer Rights, a California group pushing tougher state laws against corporate fraud. "It is like chemotherapy after the cancer has spread: it may punish the targeted fraud, but only once the damage is done."

Listening to his remarks Tuesday, Bush backed up his speech with little sense of passion. Is his heart really in corporate reform?

Wary investors, burned by bogus corporate accounting and a sinking stock market, and many employees who have lost jobs and seen their retirement funds decimated by fraud, doubtless have their own jaundiced message for Bush.

Show us, Mr. President. Don't tell us.

It does not inspire investor confidence that our so-called "CEO" president, the country's first with an MBA degree, heads an administration that is viewed as so chummy with corporate America.

It does not build market trust that bankrupt energy trader Enron Corp. was one of Bush's biggest contributors. It does not help comfort investors that other top administration officials have similar self-servimng business tales and denials of responsibility in their own past.

Vice President Dick Cheney, before being elected to office, received low-priced insider shares on multiple IPO deals (that he had nothing to do with) that earned him large and quick profits. Cheney also ran Halliburton Co. from 1995 to 2000, a period when the Texas energy company adopted accounting practices that now are the subject of a federal inquiry. But Cheney has yet to be contacted by Securities and Exchange Commission investigators.

U.S. Army Secretary Thomas White is a former senior Enron executive who ran a subsidiary now facing questions of funny accounting. Other administration officials were Enron consultants. Even SEC Chairman Harvey Pitt faces allegations that he is too cozy with the accounting industry whose practices he is supposed to be cleaning up.

In Tuesday's speech, Bush called on Congress to give the SEC more money to hire investigators, and added powers to freeze improper payments to corporate executives and strengthen laws that prevent the destruction of corporate documents in order to hide crimes. That's a plus, if Congress approves such changes.

But will the SEC, a demoralized business watchdog, have the will to use these new resources?

Bush also called on corporate compensation committees to halt the widespread practice of officers receiving loans from their companies. That's a good suggestion -- but that's all it is, so far -- given how commonplace it has become for companies to lend to executives.

Among central Florida companies, for example, SEC filings show that Clearwater's Digital Lightwave recently loaned $200,000 to James Green, an executive vice president. Tampa's Excal Enterprises offered loans to both officers and directors. In Orlando, Tupperware CEO E. V. Goings owed the company more than $7.4-million in loans at the end of 2001. And a recent survey of South Florida's 90 largest companies by the Miami Herald shows that nearly one quarter have loaned money to their executives.

In his remarks, Bush merely asked chief executives to explain to investors "in plain English" how their compensation packages are in the best interest of shareholders and list salary and bonuses in annual reports. Isn't that what companies are supposed to do right now in annual proxy statements?

Bush also called for corporate officers who benefit from false accounting statements to forfeit all money gained by their fraud.

Let's have a reality check. Will the feds really go after Enron ex-chief financial officer Andy Fastow, who engineered the Byzantine and conflicted deals that paid him tens of millions at shareholder expense? Or will Fastow continue to coach Little League and pour money into a fancy Houston home that just might serve as a financial refuge under Texas law against future legal efforts to seize his assets?

Will Fastow ever pay that money back? Will Fastow go to jail? The same questions can be asked of dozens of other executives and directors of large companies recently brought down by internal fraud.

"More scandals are hiding in corporate America," Bush told his Wall Street audience. He's probably right.

Bush this week again defended his Harken stock sale in 1990 -- selling just two months before Iraq's attack of Kuwait flattened energy stocks -- by noting that the SEC investigated and later chose not to pursue the matter.

But did it help George W. that his father was president at the time? Was George W. given a break by investigators at the SEC, whose chairman at the time of the sale was Richard Breeden, a long-time aide to George W.'s father?

That episode, drawn back into the news by President Bush's new role as cheerleader against corporate scandals, now leaves President Bush vulnerable to public doubt and Democratic criticism.

One Wall Street speech, touting "America's greatest economic need is higher ethical standards," will not change the bad habits of the corporate elite. Bush has an uphill battle convincing skittish investors, a humbled stock market, and a corporate culture rewarding those who take short cuts that the federal government now means business.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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