President George W. Bush, a recent convert to government regulation, shamelessly signs the legislation in a Rose Garden ceremony where Democrats are excluded, or at least kept out of camera range. Bush’s political guru, Karl Rove, successfully peddles the message to the American people that the Republican Party is leading the reform of corporate America.
Bush is struggling to right the ship of state and bring investors back into the stock market. To do that, he’s got to get ahead of the story that is consuming his administration. His speech this week and his earlier press conference did little to restore confidence, but Bush did spark a confrontation with the Democrats over whose reform this is anyway. Democrats are turning up the heat on the White House in a way they haven’t dared since 9-11. California Rep. Henry Waxman, the ranking Democrat on the Government Reform Committee, drafted a respectfully worded letter to Bush applauding him for his Wall Street speech exhorting CEOs to clean up their character and ethics. But if the president is to bridge the gap between rhetoric and action, Waxman says individual executives must step forward to accept responsibility.
What better way, argues Waxman, to set an example than for Bush, Vice President Dick Cheney and Army Secretary Thomas White to donate to charity all or a portion of the money they gained from companies that then suffered catastrophic losses and whose shareholders bore the brunt of the decline? Bush’s tab would be a mere pittance compared to the others: he received “only” $848,560 from his sale of Harken stock. Cheney could draw from a total of $35 million. That’s what he sold in Halliburton stock in August 2001; his profit is computed at $18.5 million. Halliburton was trading at $52 a share then; in the last year, the stock got down as low as $8.60 a share. Cheney was CEO when Halliburton changed the way it computed its earnings, which inflated the company’s worth. By the time the Securities and Exchange Commission forced a restatement of earnings, Cheney was long gone. The SEC is still investigating. As for White, he gets a break. Instead of going way back, Waxman looks only at 2001, the year Enron collapsed and White, a top Enron executive, was named secretary of the Army. White’s compensation that year: $31.5 million.
The White House will say this is an attack on Bush, but Bush said this week that he wanted higher ethical standards. Without anybody stepping forward and demonstrating clear moral character, these are empty words. Trust in corporations has deteriorated so dramatically under the drumbeat of scandal that a single speech cannot restore confidence. “One speech can help, but it’s the actions that follow,” says Goldman Sachs’ Robert Hormats, who served in the Reagan administration. Wall Street will be watching to see how aggressive the SEC and the Justice Department will be in prosecuting wrongdoing. The SEC has never been adequately funded, and the boost in budget Bush called for in his speech is less than the amount Republicans and Democrats in Congress have already agreed upon.
The problem shareholders have is they see executives retreating to their second homes and keeping their ill-gotten gains while the lowly shareholder gets stuck with the bill. Ken Lay, Jeffrey Skilling and Bob Fastow of Enron fame all still have their money. “It’s almost like the children’s game Finders Keepers, Losers Weepers,” says a Democratic congressional investigator. “Their posture is, if you want the money, sue us.”
This over-the-top compensation is almost beyond the ability of ordinary people to grasp. Bernie Ebbers, the deposed WorldCom CEO, got more than $400 million in loans at an interest rate of just over 2 percent. The CEO of Adelphia got $3.1 billion in loans. That’s right: billion. “Three-point-one million I can understand,” said the Democratic investigator. “Maybe he wanted a boat nobody else had-but what do you buy with $3.1 billion?”
This is the kind of sweetheart deal that Bush wants banned, and rightly so. The problem for Bush is how do you preach on these issues if questions are raised about your own past. By testily inviting reporters to look at anything they want in his financial past-“There’s no there there,” Bush said in his press conference this week-he legitimized a re-examination of his record.
“He did the equivalent of Gary Hart’s ‘Follow me’,” says Joe Lockhart, President Clinton’s former press secretary, referring to Senator Hart’s call to journalists in the early days of his quest for the 1988 Democratic presidential nomination. (Reporters who took Hart up on his offer discovered the actress Donna Rice on his lap on a yacht called the Monkey Business; front-runner Hart’s campaign collapsed.)
Thursday’s New York Times revealed that Bush had received two preferential loans of the kind he now proposes banning while he was on the Harken board. From the perspective of someone who managed a lot of scandal, Lockhart says the story would have been a footnote if the White House had put it out instead of letting the New York Times have a scoop.
The loans Bush got were proper at the time; they just look bad. Here’s what he did: Bush sold his failing oil company to Harken, which put him on its board and gave him the loans that helped launch his next career as owner of the Texas Rangers. Bush managed to sell off his Harken stock just ahead of the bad news that drove down the stock price. His perceived success as a businessman plus his family name helped him swing a deal for public taxpayer money to build the stadium that would house the team he bought-and make him a rich man.
Republicans find solace in Bush’s continued high poll ratings and warn that if Democrats make this a crisis of confidence about Bush, there will be a backlash just like the one in 1998 that benefited Clinton and the Democrats after the relentless attacks waged by the GOP. IF there is a parallel, it’s this: What Clinton did for marital infidelity, Bush is doing for corporate responsibility. That’s the Republicans’ nightmare scenario.
