Your Call Is Important To Us

by Penny, Laura

  How do I know people think unions are bad? Well, brothers and sisters, plenty of people told me as much when, working for a teaching assistants’ local, I ran around begging them to please, pretty please, come to the union meeting tonight. Nobody beat me with a lead pipe—this was no old Rockefeller mine. But a few grumbled about wasted dues, and the rest remained indifferent, as though I were trying to get them to come to the chess club or a Tupperware party. Everyone sat around the bar and griped about being broke as shit, but only a handful of folks wanted to get together and mention that fact to our august employers. Most people just didn’t see what was in it for them.

  The prevailing worldview at grad school seemed to be that you busted your hump to publish as much stuff and get as much funding as you could, scraping by on part-time jobs and loans until the mystical moment around middle age when you got tenure and were set for life, like your profs. But those profs didn’t just have the advantage of getting their PhDs at the same time as all that sweet, sweet sixties’ government funding. They also organized and represented themselves. In my grad school, on the other hand, people conducted themselves as individuals in competition, not as members of a class.

  This phenomenon isn’t limited to grad school: In the high-profile professions that ruled during the boom, Xtreme competition was the rule. Unionization is actively discouraged in the service industry, where employees are encouraged to feel they’re part of a team, loyal to the brand and the leadership. Union work became a lazy-Teamster joke, not nearly as cool as Brave New Work—the flex-time telecommunications job with the stock options. And because unions are only as strong as their members, the “unions are bad” idea has become a self-fulfilling prophecy. The less people believe in unions, the less power they have. The less power they have, the less people believe in unions. Without the unions to exert pressure on wages, there’s no good reason for employers to raise them, even as all the other economic indicators float up, up, and away.

  The boom might have been unprecedented, but it wasn’t entirely unfamiliar. The super-rich continued to get super-richer, the moderately rich did well, the middle class lost ground, and the poor were left, to bum a phrase from Donald Barthelme, sucking the mop. Bush dismissed critics of his pro-plutocrat tax giveaway by insisting his detractors were trying to stir up class warfare. And his rhetoric was effective. Most Americans labor under the delusion that they live in a classless society, where such Euro-commie talk does not apply. They cling to the myth of upward mobility, the sense that anyone, if sufficiently blessed with astounding bone structure, a boffo idea, and a willingness to work themselves to the very marrow, can be a billionaire. Since Reagan, who declared that he wanted to live in an America where everyone could be rich, the atmosphere has been more like class bullying than class war, with everyone disdaining their immediate inferiors and aspiring to become their superiors. We labor under the collective misapprehension that we are pre-rich. This is one of the reasons why so many people rushed out and bought stock, and one of the reasons why people continue to vote against their own economic interests. However, despite widespread and contagious delusions of impending wealth, people are less likely to move on up the class ladder than they were before the boom. As income inequality has increased, class mobility has declined. When The Economist—hardly a socialist rag—is bemoaning the decline of meritocracy and fretting about a calcifying American class system, as they did in December of 2004, it would appear things have taken a definite turn for the dynastic.

  Throughout the ages, there have been choruses of warnings against the corrosive effects of income inequality. You’ll find the message in golden oldies like the Bible, Plato’s Republic, and in Francis Bacon’s admonition that wealth is like muck—useless unless you spread it around. Founding Fathers like Jefferson and Madison had strong words about the impact of an excessive income gap on the body politic. For a more timely take, consult the Princeton professor and New York Times columnist Paul Krugman, who rightly rails against the Bushies’ mendacious math. The U.S. might be home to the majority of the world’s billionaires, but using the wealth of the CEOs as a measure of the health and vitality of the economy makes about as much sense as basing crop predictions on the health of the king. The further the rich float into a scrubbed bubble of entitlement, and the longer the less-than-rich are left to seethe under a heap of debt and resentment, the worse this joint gets for each and every one of us.

  Which would you rather have, an enclave of fantastically wealthy CEOs, enjoying a lifestyle that makes Versailles look like a rustic commune, or good schools, good health care, and a living wage? This is a choice that the government is currently making on your behalf, and they’ve picked the billionaires every time, no matter how platitudinous they wax about leaving no child behind. Did Americans really throw off the yoke of English tyranny so they could bow down to a set of new kings—monarchs of Mammon like those self-lavishing cheats Dennis Kozlowski, Jack Welch, and Ken Lay?

  CHAPTER FOUR

  When abuses like this begin to surface in the corporate world, it is time to reaffirm the basic principles and rules that make capitalism work: truthful books and honest people, and well-enforced laws against fraud and corruption. All investment is an act of faith, and faith is earned by integrity. In the long run, there’s no capitalism without conscience; there is no wealth without character.

  PRESIDENT GEORGE W. BUSH

  When booms go bust, they tend to flush out companies that have, in the giddy spirit of bullish excess, been less than forthright about their books. The last bust was no exception. The Enron scandal, the ur-fraud, began coming to public consciousness in fall 2001, and Enron declared bankruptcy by December. That was the biggest such bankruptcy ever until July of 2002, when WorldCom finally tumbled into its own fantastic imploding sinkhole. Those two remain the heavyweight champions of corporate fraud, but throughout 2002 and 2003, a wave of lesser corporate scandals, from Adelphia to Xerox, revealed “accounting irregularities” in the billions of dollars. “Accounting irregularities” is North American euphemese for senior executives and their chums on the board contriving utterly bogus financial statements, swindling their shareholders, employees, and the public, and absconding with millions and millions of dollars. Marketeers were quick to characterize the collapse of these behemoths of bullshit as the market correcting its own excesses, outing the truth in its inimitable market way. “Companies come and go. It’s part of the genius of capitalism,” enthused Paul O’ Neill, the then secretary of the Treasury.

  Apparently, the two biggest bankruptcies in American history weren’t a sign of systemic rot but proof that the system worked. And while it is true that a shift in the business cycle was partially responsible for outing some of the more spectacular instances of corporate fraud, the greater share of the credit and blame belong to whistleblowers and sheer hubris on the part of the perpetrators. The market let all that shit happen for a long damn time before the genius of capitalism kicked in.

  The suits also attempted to minimize the radius of corruption. The “one bad apple don’t spoil the whole bunch” cliché got a lot of play, as politicians, analysts, and commentators tried to ward off the creeping Enronitis. Most companies, we were told, were as honest and true as the family pooch. We needn’t get all worked up into a regulatory lather over the few bad apples. And please, pretty please, Mr. and Mrs. John Q. Public, keep those investment dollars flowing. No investor confidence crisis here, folks.

  The bad apple cliché is off on a couple of counts. When we are talking about corporate scandals, we aren’t talking about a few piddly little Granny Smiths. Companies like WorldCom and Enron were among the planet’s hugest, most high-profile concerns, in big-deal fields like telecommunications and energy. The taint of scandal isn’t confined to a couple of excessively effusive companies, either. Executives at Tyco, Waste Management, Qwest Communications, Global Crossing, ImClone, Tenet Health, HealthSouth, and Vivendi have also been accused of various forms of malfeasance. Accountin
g firms such as Arthur Andersen were implicated in the divers scandals, as were major investment banks, such as Citigroup and Merrill Lynch. Major players in mutual fund and insurance industries are also under current investigation by the SEC and New York Attorney General Eliot Spitzer.

  These corporate scandals are hardly proof that the system works. Rather, the failure of so many so-called checks and balances tells us that we have serious corporate governance issues. Corporations have long insisted that they be allowed to govern themselves as they see fit, and have been bridling under the yoke of government regulation. They are still perfectly happy to cash government checks, and hand bales of dough to politicians willing to push the deregulation agenda, but they don’t like it when the government gets bossy or nosy. The business community argues that they have their own self-regulating mechanisms, like auditors, accountants, analysts, credit bureaus, corporate boards, and the sainted market itself, à la the raptures of O’Neill. All of these self-regulating mechanisms failed in the case of the corporate crime wave.

  The watchdogs were far too busy chewing on juicy steaks to bark. Auditors who were supposed to scrutinize the numbers were also busy consulting, which is to say, cooking up creative numbers and creating artful dodges for their clients. According to the Securities Exchange Commission, half of the accounting firms’ revenue in 2000 came from consulting, as opposed to a piffling 13 percent in 1981. At the banks, analysts who were supposed to recommend prudent buys instead recommended just about everything to a stock-crazed populace. The corporate board members, supposedly there to protect the interests of the shareholders, aided and abetted the fictions of the CEOs who, more likely than not, selected them to sit on the boards in the first place.

  There is a delightful term for the latter phenomenon—incestuous affirmation. Incestuous affirmation sets in when one grows so powerful and wealthy that one is utterly isolated from anyone but the like-minded or toadying. Examples of the deleterious effects of incestuous affirmation include Donald Trump’s hair, Michael Jackson’s face, and the Bush war cabinet. Another prime example of this phenomenon is Conrad Black, who used his company, Hollinger International, as a personal piggy bank for years thanks to a board disinclined to notice, let alone censure him for it. The board finally snapped to and gave Black the boot in November 2003, and the SEC charged Black, his COO, and Hollinger with fraud in November of 2004.

  Everyone knows that corporate crime is nice work if you can get it, much more lucrative and low-risk than other, more vulgar, forms of law-breaking. Forget all those right-wrong questions and do the cost-benefit analysis. Corporate crime pays. But those purloined millions didn’t come from some fantastic infinite market force. Corporate criminals made their millions the old-fashioned way: They stole them. They elided the public purse. Nothing washes down a little off-book profiteering like setting up dozens of offshore tax shelters. They milked and bilked the public purse, too, benefiting from sweetheart deals and custom-made legislation. They borrowed themselves blind, and then recorded the loans as though they were profits. They shafted millions of customers, as evidenced by California’s rolling blackouts, to name but one example of price-gouging and crappy service. The employees of corrupt concerns also got royally screwed. They weren’t just out of jobs when the company crashed and burned. Many also lost the savings they had invested.

  Employees, pension fund administrators, institutional investors, and shareholders freaked out with each new crest in the corporate crime wave, and rightly so. Why, it got so bad that Bush had to stage a crackdown on this sort of thing, particularly with the press speculating about the admin’s very cozy relationship with persons of interest such as Ken “Kenny-Boy” Lay. In July of 2002, shortly after WorldCom began to implode, Bush announced the creation of the Corporate Responsibility Task Force, a “financial-crime SWAT team,” wholly and solely devoted to the pursuit of white-collar evildoers. He furrowed his brow, chastised the chiselers and book-cookers, blustered about trust and transparency, and swore he would bring the crooked businesspeople to justice.

  Larry Thompson, a Department of Justice official, headed up the task force. Before Thompson joined the Department of Justice in 2001, he spent a few years on the board at Providian, a credit card company that paid hundreds of millions of dollars to settle suits for allegations of securities and consumer fraud, while, of course, denying all wrongdoing. They paid up, but would not confirm or deny the allegations. Thompson supporters insisted that he had been a force for rectitude when dealing with the fraud fallout at Providian, but it became a moot point, anyway, since Larry didn’t last that long. The most recent update of the Corporate Responsibility Web page on the White House site is a one-year anniversary press release, from July of 2003, boasting of a couple of hundred charges filed. Larry decamped in August of 2003, and I haven’t heard or read thing one about his replacement in the mainstream press.

  The task force did issue one other press release, celebrating their second anniversary in 2004, but I had to go to LexisNexis to dig it up. This press release claims the SWAT team was responsible for more than five hundred convictions or guilty pleas, including thirty-one charges for those involved in the Enron scandal. The task force is also proud of the part it played in the corporate cases that have come to trial thus far, like the Adelphia, Martha Stewart, and Frank Quattrone trials. Of course, in the case of both Martha Stewart, the SEC’s conveniently famous scapegoat, and venture capitalist Quattrone, the charges were actually obstruction of justice charges. And even though it is easier to prosecute a cover-up than a complex fraud scheme, which is precisely why they were charged with obstruction instead of insider trading or fraud, Martha got a piffling five months in the hoosegow and Quattrone’s first trial ended in a hung jury. The Adelphia case was also declared a mistrial.

  It should also be noted that the tasking of the force did not involve much in the way of new funds, or new personnel, and was instead a coordination of existing resources in the FBI, SEC, IRS, and DOJ. Some involved in the corporate crime investigations have complained that the demands of the War on Terror have siphoned away resources and experienced agents. The most vigorous pursuer of corporate criminals, in terms of high-profile settlements and suits, is not the Corporate Responsibility Task Force, but New York State Attorney General Eliot Spitzer, who has successfully taken on megabanks, mutual funds, and insurers. I am quite sure you have heard of the tenacious Mr. Spitzer. I am equally sure you have not heard of James B. Comey, the head of the Corporate Responsibility Task Force as of that 2004 press release.

  Even though there are some corporate crooks who have already been sentenced, like Enron’s Andrew Fastow, the really huge trials, the Ken Lay trial, and the HealthSouth trial, wait in the wings, and will take place over the course of 2005. Bernie Ebbers of WorldCom was convicted in March 2005. His “aw-shucks” defense didn’t work. The Tyco and Adelphia retrials are in the pipe, too, following a go-round of mistrials. It seems that juries do not particularly enjoy parsing sophisticated accounting schemes, and they are not especially adept in the arcane fiscal arts. It remains to be seen how severely the justice system will punish these alleged malefactors of great wealth, but most of them are marching into court under the banner of Not Guilty.

  On the legislative side, the Sarbanes-Oxley Act became law shortly after Bush announced his corporate crime crackdown. Democratic senator Paul Sarbanes initially floated the bill, to furious objections from Republicans. Republican senator Michael Oxley, a beneficiary of donations from the investment community, was against the bill before he co-sponsored it. Both sides haggled their way to a compromise when they saw something needed to be done, or—to be perfectly cynical—when they realized they could get more political capital from a crackdown than from the appearance of condoning these shenanigans to the point of complicity. A defanged version of the original bill eventually passed the House and the Senate by resounding majorities. Provisions of the bipartisan bill include the creation of an accounting oversight board, the
requirement that top company officers sign off on all financial statements, and stricter penalties and longer sentences for white-collar crimes.

  These measures are steps in the right direction, but I have to admit the signing rules come as something of a surprise. I have to sign the back of a $40 Christmas check from my grandma, but the head of an enormous multimillion-dollar concern doesn’t need to sign off on company financial statements? Suffice it to say that I’m glad they got around to fixing that. However, the legislation does have a few notable omissions. There is nothing in the legislation about off-book bonus expensing, for example, which was one of the problems common to most corporate scandals. Republican Phil Gramm even went so far as to say that government messing with this kind of accounting would be “very dangerous and very counterproductive.” It may come as no surprise that Gramm and his wife have been members of a number of corporate boards, including Enron’s. Furthermore, the first choice to lead the oversight board, pension administrator John H. Biggs, was scuttled by the Republicans, and Harvey Pitt at the SEC, because they thought he was too tough on business. The corporate community is none too pleased about the costs and paperwork involved with Sarbanes-Oxley compliance, which has become a multimillion-dollar growth industry in itself. The Web teems with Sarbanes-Oxley software and consultation services. It has been a super-sweet couple of years for accounting firms, particularly the big ones, which is pretty funny when you consider their culpability in creating the problem in the first place. It’s the genius of capitalism!

  Measures like longer jail terms for corporate crime, or securing executive autographs, salutary though they may be, are like Band-Aids on cancer. They fail to address the more fundamental problems with crony capitalism, and its major institution, the corporation.