Can Bush Walk His Talk?

He said much that was right in his Wall Street speech. But doubts swirl about his follow-through -- and his own business dealings

By Howard Gleckman

Give President Bush credit. In his July 9 address to Wall Street, he correctly identified a big part of the solution to the wave of business scandals that have shaken investor confidence, riled the markets, and seriously eroded public trust in Corporate America. While Democrats cry for new laws, Bush says boardroom corruption can best be stopped quickly and cleanly by tougher enforcement of existing rules.

He's right. The trouble is, there are real doubts about whether his Administration is prepared to follow through on his tough talk.

Bush has a serious credibility problem here. He has a cozy relationship with the business establishment, which begins, but hardly ends, with his prodigious fund-raising efforts among the country-club set. He's personal friends with some of the people whose activities are at the center of the scandals, including former Enron CEO Kenneth Lay -- Bush's principal financial backer throughout his political career. And questions remain about the President's own business ethics when he was director of Texas-based Harken Energy (HEC ), as well as those of Vice-President Dick Cheney when he was CEO of Texas-based Halliburton (HAL ).


  Misgivings also swirl around the credibility of his SEC Chairman, Harvey Pitt, once the lawyer for the accounting firms largely responsible for the bookkeeping scandals. And what about Bush's new-found interest in government enforcement of securities laws? How does that square with his oft-stated belief in smaller bureaucracies? After all, just a few months back Bush wanted to cut the SEC budget. No wonder so many doubt his vows to crack down on corporate malfeasance.

Wall Street certainly heard nothing to buoy its spirits. The Dow Jones industrial average dropped 178.90 points after the speech, closing at 9096.09. Still, the President's words, for the most part, were the right ones. "We will," he told his New York audience, "use the full weight of the law to expose and root out corruption." And, he added, "Defrauding investors is a serious offense, and the punishment must be as serious as the crime."

No arguing with that. And there's little reason to believe that adding pages of feel-good laws to the federal criminal code would do much to fix the problem. After all, much of what allegedly happened at WorldCom (WCOME ), Enron (ERNQ ), and the others is quite likely already illegal. But if the perpetrators are charged, tried, and acquitted, then Congress and the White House should consider toughening the laws.


  What's needed now, as Bush says, is to toughen enforcement. Give the SEC the resources it needs to investigate fraud and bring the crooks to justice. Let judges mete out tough sentences, including jail time, for serious white-collar crime. Nothing will do more to get the attention of CEOs than to watch the bad apples in the bunch being carted off to federal prison for some serious hard time.

And the law needs to be enforced all the time, not just for a year or so in the wake of a scandal. That's what happened after the S&L collapse and after the Drexel Burnham junk-bond mess. Regulators cracked down for a while, then everyone lost interest. Enforcement needs to be tough, predictable, and constant.

Alas, Bush's remedies also play to the already deep doubts of his critics. Much of the new proposals he put forth in New York amount to little more than ear-candy. Requiring shareholder approval of options compensation won't change a thing. Except in the most egregious cases, shareholders will approve anything the board puts in front of them. Doubling prison sentences for mail fraud is something judges can do already. And a new Justice Dept. securities fraud "swat team" is plain silly. The SEC and local U.S. attorneys can do a fine job as is, if their political bosses will just let them.


  Bush also left out one important substantive reform. Companies should be required to fully disclose stock-option expenses. They take a tax deduction for the cost of options compensation. They should be required to take the charge on their financials as well.

What else should the President do? He needs to clear the air surrounding assertions that he failed to properly disclose a 1990 stock sale involving Harken Energy. For him to say it's old news won't cut it. And for Bush to argue, as he did on July 8, that "in the corporate world, sometimes things aren't exactly black and white when it comes to accounting" is simply breathtaking.

He's supposed to be sending a message of corporate accountability. Yet he has variously claimed his own failure to file timely disclosures about his sale of $848,560 in Harken stock was due either to an oversight by some lawyers or because the documents were lost by the SEC. If this sort of "the dog ate my homework" argument won't wash for WorldCom, how can he expect it to work for him?


  At the same time, Veep Cheney needs to come clean -- big time -- about his role as CEO of Halliburton. Explain everything. The SEC is investigating the oil-services company's accounting during Cheney's regime. He knows what happened. He ought to tell. Finally, Bush would be best served to replace SEC Chairman Pitt. He's simply the wrong man for the job in the current environment. The President needs to find a highly regarded consensus candidate to run the commission, and he needs to fill other vacancies on it -- immediately.

Much has been made lately of Bush's link to Teddy Roosevelt. TR believed in walking softly and carrying a big stick. Bush, by contrast, is speaking loudly, but carrying a twig. For the most part, he says the right words. But he has yet to convince investors and the American public that he means them.

Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online

Edited by Douglas Harbrecht

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