Speech Code

The central paradox of George W. Bush's presidency is that he is a conservative Republican who holds office at a time when the public has regained its appetite for activist government. As a result, his habitual tack on domestic matters has been to rhetorically align himself with popular reforms but substantively align himself with his ideological and financial base in the business lobby. He has followed this pattern on social spending, campaign finance reform, prescription drugs, patients' rights, airport security, and other issues. And now he has done it again on corporate reform.

Bush's message this week was that he is truly and deeply outraged by corporate malfeasance. The administration leaked to the press a conversation between Treasury Secretary Paul O'Neill and Bush, wherein the former bemoaned the fact that kids with marijuana get more jail time than do corporate crooks, which prompted the president to reply, "You're absolutely right," and shake his head. In his speech on corporate responsibility on Tuesday, Bush railed against "business executives breaching the trust and abusing power," and called for "a new era of integrity in corporate America." To accompany his tough rhetoric, Bush presented a seemingly thorough proposal, filled with nice, round numbers: A ten-point Accountability Plan; a doubling of prison sentences for financial fraud; a $100 million funding increase; and 100 new staffers for the Securities and Exchange Commission (SEC). The purpose of all this was to create the appearance of reform while doing as little as possible. Eighteen months into his presidency, Bush has the routine down to a science.

Begin with Bush's threats of lengthy prison sentences, one of the highlights of his speech. It might seem obvious that the threat of jail time would deter white-collar crime. The problem, alas, is that criminalizing financial fraud rarely works. Consider--to take one company at random--Harken Energy, which employed Bush as a consultant and audit committee member. Harken inflated its stock by putting together a group of insiders to purchase a subsidiary at an inflated price. "This was an honest disagreement about accounting procedures," Bush told reporters the day before his speech. "And the SEC ... asked Harken to restate earnings, which it did. I mean, that's the way the SEC works." Bush is wrong to use the system as a moral defense of Harken's obviously unethical accounting. But as a legal matter he's right. Financial fraud usually involves lots of people delving into legally murky terrain. Pinning the responsibility on a single individual, and proving criminal intent, is usually impossible. Increasing jail terms, as a former SEC official puts it, is "more symbolic than something that's likely to have an important effect."

The good news is that there are plenty of other ways to rein in corporate malfeasance. The bad news is that, his rhetoric notwithstanding, Bush opposes almost all of them. His ten-point plan is an empty shell, filled with measures the SEC or stock exchange already planned to adopt or with measures that are actually weaker than the ones they have proposed. Right now, for instance, the SEC can't bar executives from serving on boards unless it can prove their "substantial unfitness." The SEC wants to lower the standard to merely "unfit," making it easier to bar crooked executives. Bush's speech included a ringing call to bar "corporate leaders who are convicted of abusing their powers." This new standard--actual criminal conviction--would set the bar for executives even lower than it is right now.

Or take SEC funding. Even Republicans say SEC enforcement has languished due to years of underfunding. Its lawyers not only earn vastly less than the private sector they match wits against; they earn considerably less than lawyers in other federal agencies. Bush promises a $100 million boost, which sounds generous--until you realize that even House Republicans have pledged an increase three times greater.