Crusaders go too far

July 16, 2002|By Steve Chapman

CHICAGO - When it comes to street crime, Republicans inevitably propose to combat the problem with more cops and stiffer punishment, while Democrats are more inclined to say we should heed the "root causes" of crime.

On the topic of corporate piracy, by contrast, Democrats want to put a cop in every boardroom and a dozen CEOs in every prison. But they might also want to consider the limits to what can be accomplished through an ostentatious policy of getting tough.

Not that some lengthy prison sentences wouldn't have a wholesome effect. Drug dealers are seldom deterred from their illegal trade by the threat of jail, which many of them have experienced and survived more than once. Corporate managers, by contrast, see penal confinement as a catastrophe to be avoided at all costs. Drag a few executives off in handcuffs and orange jumpsuits, and you'll instill a healthy terror in the ones left behind.

That spectacle would also help to appease public anger at managers who have wrecked companies and fleeced investors. But the anger shouldn't be allowed to turn into a crusade to punish the innocent along with the guilty.

Things have not been great for investors lately, but compared to what? Compared to the dizzying 20-year stock market boom that went before. Even at Tuesday's dismal closing of 9096.90, the Dow Jones industrial average is up more than 1,000 percent in the last 20 years.

All that is worth keeping in mind before we enact a raft of new laws designed to regulate and monitor corporations to within an inch of their lives. Sen. Patrick Leahy of Vermont, wants to make it easier to prosecute securities fraud, but there are plenty of federal laws already on the books - including 300 that cover fraud and misrepresentation. Does Mr. Leahy really think there's some new form of misbehavior that we've never bothered to outlaw?

It would be a great surprise if any minimally competent prosecutor couldn't find a way to go after executives at Enron, WorldCom and other wayward companies. Arthur Andersen has already been convicted of obstruction of justice. That there has been a plague of scandals doesn't mean the laws are inadequate. Murder is illegal and punishable and yet it happens 15,000 times a year in America.

If the existing criminal sanctions aren't enough, civil penalties are also available for shareholders and other victims. That's why the executives, accountants and directors responsible for these debacles can expect to be relieved of most of their worldly possessions. If we assume that businesspeople care for money above anything else, shouldn't that prospect deter a lot of shenanigans?

The president proposed requiring more outsiders on corporate boards and audit committees, but why is legislation needed? The New York Stock Exchange has already taken steps toward requiring greater independence among directors of its listed companies, and the Nasdaq is considering similar actions.

Even if other exchanges refuse, or if companies not listed choose not to go along, that's adequate protection for investors. You think corporations can't operate honestly without plenty of outside oversight? Fine - put your money into companies on the NYSE. And if you disagree, you can take your chances with other stocks.

It's not crucial that every company have the same standards for governance, any more than it's necessary for every car to be equally crash-worthy. All that matters is for buyers to have the information to choose more protection or less.

Likewise with accounting practices. Big accounting firms are already spinning off consulting services into separate companies to prevent those embarrassing conflicts of interest. Undoubtedly, corporate boards - now under intense scrutiny and fearful of liability - will take a hard look at the services their accounting firms provide. Different restrictions may make sense in different sectors, but we'll never find out if Washington insists on one policy for all.

Our elected leaders dearly want to do something immediately about the scandals. But the courts and the private sector are already responding in ways that will cleanse corporate America and protect investors. The best thing Washington can do right now is step aside and let that process run its course.

Steve Chapman is a columnist for the Chicago Tribune, a Tribune Publishing newspaper. His column appears Tuesdays in The Sun.

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