No More Pigs at the Trough:
How to Cure Infectious Greed
by Arianna Huffington
The Nation magazine, February
In August of 2002 I received a politely
phrased notice from my cable company, Adelphia, addressed to "Dear
Valued Customer," announcing that my monthly cable fee would
be increasing. The letter explained that "like other businesses,
Adelphia constantly faces increases in operational expenses such
as wages, specialized training for our employees, utilities, fuel,
insurance, equipment.... " Missing from the missive? Any
mention of another operational expense that no one at Adelphia
seemed too happy to discuss. During the unfortunate latter days
of his reign, former CEO John Rigas had borrowed $3.1 billion
from the company and spread the money around like seed on a sun-scorched
lawn. His own lawn, of course. He spent $13 million to build a
golf course in his backyard, $150 million to buy the Buffalo Sabres
hockey team, $65 million to fund a venture capital group run by
his son-in-law, thousands to maintain his three private jets,
and $700,000 for a country-club membership. It's a wonder my bill's
not going up a million dollars a month. I just hope Adelphia's
subscribers aren't also paying for his bail.
In the superheated 1990s we were told
repeatedly that the "democratization of capital" and
unparalleled increases in productivity would level the playing
field and produce unprecedented gains in everyone's standard of
living. Well, far from closing the vast gap between the haves
and the have-nots, the lunatic excesses and the frenzy of fraud
perpetrated by our high-flying corporate chieftains have left
America's 401(k)s and pension plans in ruins and more than 8 million
people out of work. Meanwhile, despite the much-vaunted Corporate
Responsibility Act and the highly publicized roundup of a few
of the most heinous offenders, the awful truth is that the corporate
tricksters have pillaged the US economy and gotten away with it.
They're still living in their gargantuan houses, still feasting
on their wildly inflated salaries and engorging themselves on
staggering sums of stock options, while the rest of America tries
to figure out how to rebuild for retirement. Or send a kid to
college on a worthless stock portfolio.
Since, at its heart, the corporate scandal
is a political scandal- corporate money corrupts politicians,
who, by passing or neglecting to pass laws, make corporate crime
possible and profitable-it's hard to see how we will ever get
rid of this corporate hangover until we cure our politicians'
unslakable thirst for campaign cash. Ultimately, the only way
is by adopting the Clean Money, Clean Elections model, which replaces
the nonstop money-grab with full public financing of elections.
In the meantime, a whole raft of specific corporate reforms is
* Treat stock options as the expenses
they are. This reform was dropped from the Sarbanes-Oxley bill-a
set of financial-sector reforms passed by Congress last summer-even
before it hit the Senate floor. Tom Daschle, fresh from getting
an earful from venture capitalist and big-time Democratic Party
donor John Doerr (Doerr and his wife have given $619,000 to Democrats
since 1999), pummeled John McCain's attempt to force a vote on
stock option reform, before jetting off to Nantucket.
* Make breaching the Chinese wall between
research analysts and investment bankers illegal. The Sarbanes-Oxley
bill has done nothing to make it harder for investment banks to
deceive investors with overly optimistic research, using their
research departments to land banking business.
* Prohibit accounting firms from providing
consulting services while auditing a company s books. Under Sarbanes-Oxley,
the provision of consulting services by audit firms is only restricted
somewhat, not made illegal.
* Outlaw offshore tax havens and, in the
meantime, bar companies that move their headquarters overseas
from competing for government contracts. The Sarbanes-Oxley bill
neither bans nor restricts the use of tax havens by American corporations.
Nor does it ban or restrict government contracts from going to
these companies. In 2001 alone such contracts topped $1 billion.
* Regulate the special-purpose entities
used for the complex, off-balance-sheet transactions that were
at the heart of the Enron debacle. No new rules governing special-purpose
entities were included in the Sarbanes-Oxley bill, so, for the
moment, they can still be hidden off the company's books.
* Strengthen whistleblower protection
and insure that it shields all workers equally. This vital reform
was covered in the Sarbanes-Oxley bill, but only with very ambiguous
language that allowed the President, hours after signing the bill
into law, to issue a White House interpretation limiting whistleblower
protection to those providing information during a Congressional
* Strengthen the independence of corporate
boards. At the moment, the New York Stock Exchange and the NASDAQ
are proposing that companies have a board with a simple majority
of independent directors. If approved by the Securities and Exchange
Commission, the new rules will apply to the 2,300 US companies
listed on the Big Board, which will have two years to comply.
Companies that fail to do so face the daunting prospect of a slap
on the wrist-a letter of reprimand from the NYSE.
* Drastically overhaul current accounting
standards. Warren Buffett, Alan Greenspan and Henry Paulson (CEO
of Goldman Sachs), among others, have argued that the current
accounting standards are-in Paulson's words-"ripe for manipulation"
and need to be overhauled. But no such overhaul is being proposed
* Outlaw accounting gimmicks that make
it impossible for the public to have an accurate picture of a
company's financial health. To this day, Senator (and former Goldman
Sachs CEO) Jon Corzine continues to defend what he calls his former
company's "aggressive tax policy," including the liberal
use of securities known as MIPs, which manage to show up as debt
on a company's tax return but equity on its balance sheet. "Lawyers
said it was right," he explains. "Accountants said it
was right.... And the courts said it was right." In other
words, shut up and pass the New Economy Kool-Aid.
* Institute real pension reform. Even
though the savage impact on ordinary Americans' pensions has been
one of the harshest consequences of the corporate scandals, no
pension reform has been signed into law. The crisis in retirement
security is such that half of all Americans have no pension plan
at all, and half of those who do will now have to put off retirement
because of stock-market losses. There is also a blatant injustice
in the way companies provide pension plans, disproportionately
benefiting their top executives.
* Institute some basic lobbying reform.
Begin by reinstating the mandatory five-year "cooling off"
period between the time officials leave a position in the administration
and when they can begin lobbying for a related industry. This
elementary rule was instituted by President Clinton on the first
day of his Administration but rescinded during his last days in
office. Also, it should be illegal for family members of legislators
to become lobbyists.
* Repeal the Financial Modernization Act.
The act, passed in 1999, ended the separation of commercial and
investment banking functions that had been instituted during the
New Deal to protect the public from the kinds of fraud and deception
that have been rampant in the past few years.
* Stop the Bankruptcy Reform Act from
becoming law. The bankruptcy act would not only significantly
add to the burden of consumers struggling to rebuild their lives
amid tough economic times; it also contains a provision that loosens
some crucial conflict-of-interest restrictions. The exploitation
of the bankruptcy bill shows beyond any doubt that even in the
middle of all the public clamor to clean up the Augean stables
of corporate America, there is a whole industry working overtime
to shovel sackfuls of manure in even as we are taking a few teaspoons
* End the ability of mutual funds to administer
401(k) plans and other employee-benefit services for companies
in which they hold substantial positions. The seventy-five largest
mutual fund companies control 44 percent of the voting power at
US companies. So there are enormous consequences for all of us
when owners elect not to act like owners but like timorous lackeys
desperate to please management. As owners. of huge amounts of
stock, it is their job to hold incompetent or self-interested
management accountable. But there are massive fees coming their
way when corporate executives award them 401(k) and pension fund
assets to invest. For instance, the nation's largest mutual fund,
Fidelity, which owns 5.3 percent of Tyco's stock, also earned
$2 million in 1999 for its part in running Tyco's 401(k) plans.
The revelations of infectious greed have
the potential to ignite an explosion of populist outrage. The
question is: Who will light the fuse? Will it be, say, a younger,
charismatic Ralph Nader? A Ross Perot without the corporate baggage
or bats in the belfry? A real-life version of Jimmy Stewart's
Jefferson Smith, who arrives on the scene funded by $1 donations
from paperboys and soda jerks or, these days, video store clerks
and cubicle drones? My guess is none of the above. Instead it
will be a critical mass of individuals and groups mobilized by
the injustice given flesh and blood by the current scandals.
Beneath the media radar, people are organizing
across the country-from established organizations engaging in
grassroots work like Public Citizen, Common Cause, Global Exchange,
the Center for Public Integrity, the Pension Rights Center, Workingassetsradio.com
and United for a Fair Economy, to newer groups like Citizen Works
and Junction-City.com, to Jim Hightower's traveling road show,
"The Rolling Thunder Down-Home Democracy Tour.3' And there's
a lot happening at the local and state levels. Last July, for
example California State Treasurer Phil Angelides released a list
of twenty-three companies-including Tyco and Ingersoll-Rand-the
state has blacklisted because of their use of offshore tax havens.
The government needs to reward socially
conscious companies with tax credits, incentives and subsidies
while levying higher taxes on polluting and wasteful companies.
The business press needs to stop running adulatory cover stories
on America's most cutthroat CEOs and replace them with glowing
profiles of the most forward-thinking ones. And, most important,
the public has to keep the heat on, recognizing that corporations'
anti-social behavior couldn't have flourished in a vacuum. During
the l990s it was as if denial had replaced baseball as the national
pastime. We buried our heads in the sand-unwilling to question
the integrity of the bulls rushing down Wall Street for fear it
might jeopardize the 30 percent rate of return we had come to
see as our birthright. And the buoyant pronouncements of our political
leaders only served to hammer home the communal delusion that
the party would go on forever. This shared denial provided convenient
camouflage for corrupt CEOs. In America, we keep score with money
and the trappings of wealth-so the psychopaths fit right in. They
were nothing more than the winners of a game we all wanted to
play-a game that we knew rewarded certain aberrant tendencies.
So, as well as prosecuting all the crimes
these Wall Street wolf boys committed and instituting all the
major reforms needed, we should take the opportunity as a culture
to lie down on the couch and see what it was in our collective
unconscious that created these nightmares. But only for a little
while. Because we have work to do. We were told again and again
during the l990s that our unprecedented prosperity was fueled
by consumer spending. Well, the time has come for the shoppers
to leave the malls and take to the streets-to go from invigorating
our economy to reinvigorating our democracy.
Arianna Huffington, a nationally syndicated
columnist, is the author of nine books, including Pigs at the
Trough (Crown), from which this article is adapted. Born in Greece,
she received an MA in economics from Cambridge University.