Editorial

Corporate Crime Wave: The Response

Looking back on 2002, it is hard to avoid the conclusion that the big corporations won.

Confronted with a crisis of epic proportions, they emerged with bloodied noses and sullied reputations, but little more.

The U.S. Congress over the summer passed a modest financial accountability bill, the Sarbanes-Oxley bill, that will address some of the financial abuses which have come to light. Sarbanes-Oxley may somewhat limit the profit-making ability of the big accounting firms, but it is clearly in the self-interest of the broader corporate class. Only a whistleblower protection provision in the bill offers the prospect of advancing broad public interest objectives.

More significant corporate reform proposals never really received serious consideration; and, absent a new and dramatic twist in the corporate scandals or some other corporate wrongdoing, there is virtually no chance of more serious reforms achieving passage in the next two years.

Given the indisputably systemic nature of the corporate scandals, how did this come to be?

The first response of the business community and the Republican Party was to deny that Enron represented anything more than the transgressions of an individual company. For some time, it appeared that corporate and Republican intransigence would block any meaningful legislative response to Enron - until the WorldCom scandal hit. WorldCom put to rest the argument that the corporate scandals were isolated, and fueled the continuing downward spiral of the stock market.

Nonetheless, the initial resistance to reform by the Republicans had slowed the pace of efforts to move forward.

By summer, Republicans had shifted their rhetorical posture: Corporate responsibility was "in." By the end of July, even House Financial Services Committee Chair Michael Oxley, R-Ohio, was forced to retreat on most of his objections to an accounting bill that in any case only included modest reforms. President Bush signed the Sarbanes-Oxley bill at the end of the month.

Everyone embraced Sarbanes-Oxley - including the very people (among them Oxley himself) who had tried to sabotage it. In that embrace, the enemies of reform sought to squeeze the life out of any further initiatives to redress corporate dominance and wrongdoing. The underlying text: Given how much weíve done, no more needs to be done.

Then came the beating of the war drums. The contrived case for war against Iraq displaced corporate misconduct as the nightly lead story. And since Sarbanes-Oxley had supposedly solved the corporate wrongdoing problem, it was even easier to quash further discussion of what should be done. Meanwhile, the administration and the business lobbyists immediately set to undermining Sarbanes-Oxley with implementing regulations and interpretations designed to soften its already gentle bite.

The hapless Democrats, for their part, failed to turn the corporate scandals to their advantage, due to a combination of incompetence and conflicted interest.

Early on, the Democrats were wary of prioritizing the corporate scandals as a national issue. They had ties to Enron, too. Some of the companies that collapsed in disgrace after Enron - notably, Global Crossing - had strong Democratic ties, leaving the Dems vulnerable to unpleasant scrutiny if the issue was forced. And the Democratic leadershipís instinct on the issue was bad; they were frightened of being portrayed as an anti-business party (though it is awfully hard to see how anyone could seriously think the Democrats are anti-corporate), and so soft-pedaled their characterization of, and response to, the escalating evidence of pervasive corporate misconduct. They never put before the public a coherent agenda of corporate reform.

There was failure, too, from the organizational countervailing forces to corporate power. Organized labor failed to engage the national debate on corporate misconduct until August, and then did so only with a spike of interest and minimal follow through. Environmental groups were mostly silent, with the exception of a few organizations such as Public Citizen that sought to use the scandals to explain why energy deregulation should be blocked. Consumer groups offered important support for Sarbanes-Oxley, but failed to impact the national debate in meaningful ways. There are very few civic groups that do general work on corporate power (among them is Essential Action, a project of Multinational Monitorís parent organization, Essential Information), but the few who do failed to make a difference.

This last set of failures deserves careful attention. The corporate scandals presented a unique opportunity. This wasnít just a single company gone bad - an Exxon Valdez, or a Union Carbide disaster at Bhopal, or even the corruption of a major industry as in the Savings and Loan scandals. This was the corporate system revealed to be corrupt at its core. And the forces that should have leapt to capitalize on the presented opportunity, by and large, failed.

The organizations and people who perceive unconstrained corporate power as a fundamental threat to human and planetary well-being (call them the "democracy faction") need to analyze what they failed to do, and what they did wrong.

A set of interrelated factors underlay the weak response of the democracy faction.

First was a failure to affect the framing of the corporate scandals. Almost all commentators focused only on the revelations of accounting wrongdoing. The democracy faction was unable to effectively present the case that corporate law-breaking and wrongdoing spanned all aspects of corporate conduct. That reflected organizational weakness, and failure to coordinate a strategic response.

Second, because most advocacy groups in the democracy faction maintain an intense focus on particular issue areas and the details they must master to work effectively on those issues, they are not oriented to thinking about system-wide reforms. Understaffed, it seems impractical to drop the ball on long-term work where they have built-up expertise to jump into another fight.

Third, foundations failed almost completely to engage the issue. With so many groups dependent on foundation funding to function, such decisions exert a powerful influence over the advocacy agenda.

Fourth, the democracy faction failed to put forward clear proposals for reform that both could capture the publicís imagination and were elaborated in sufficient detail to be taken seriously. Hundreds of groups signed on to a Unity Platform for corporate reform, but that came much too late, with insufficient momentum, and without a proper framing or detailed backup. The democracy faction does not have among its resources a set of sufficiently elaborated proposals to check corporate power.

Fifth, the democracy faction was unable to connect with the massive, widespread and deep sense of public disgust with the corporate wrongdoers. In part, this was because the publicís outrage related to their losses as investors. In part, it was because the democracy faction organizations that have broad membership - labor unions and the environmental groups - did not mobilize their members. In part, it was because many of the advocacy groups in the democracy faction are relatively strong on policy analysis, but do not have an organizational base. No one got around to doing anything that could be called timely organizing on the issue.

Another such opportunity as occurred in 2002 may or may not present itself in the near future. The basic weaknesses and overextensions in the system of corporate rule mean new scandals or crises could break out any time, and create another opening. The democracy faction has no choice but to act as if another chance will come soon, and it must be better prepared.