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CNN Live Today
Bush Calls for More Corporate Responsibility
Aired July 09, 2002 - 12:03 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
AARON BROWN, CNN ANCHOR: John King, as we continue our coverage, our senior White House correspondent will be tracking where the president goes, both physically and with this.
John is on Wall Street -- what do you got to report here?
JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: Well, Aaron, the president now making his way back to Washington, to begin the task of selling this plan, in a very fascinating political environment.
For the first time, really, since September 11, Democrats standing up in full opposition to this president. Mr. Bush yesterday, and again today, says he wants to work with Congress on a bipartisan basis to move these reforms.
Democrats see a potential issue here for the midterm congressional elections, and even before the president delivered the speech, saying they believed it was much more about words from the White House do than any tough actions.
The president trying to rebut that here on Wall Street, saying he wants more money now for investigations. He wants Congress to pass new laws that would mean jail time for any corporate CEO who cooks the books, other steps against mail fraud, document shredding, Mr. Bush proposing an independent commission although disagreements here with the Democrats, to oversee the accounting industry.
Mr. Bush essentially saying, I am a free market, pro-business Republican, but that these abuses by Enron, by WorldCom, and other companies have left him and others in Washington no choice but to get the government more involved in both enforcement and regulation.
Mr. Bush now needs to sell his plan, as we have discussing in recent days, and the past hour or so. Back in Washington some of the Democrats outright questioning his credibility on this issue, because of his own past business experience, because of the vice president's role as a CEO.
Remember back when he ran for president, a central theme of the Bush campaign was to restore responsibility, honesty, and integrity to Washington at the time he was running, at the end of the Clinton administration, and it was an indirect way of saying, I am a more honest leader with more integrity than President Bill Clinton. Mr. Bush very much sounding those same themes today, the question is, can he now carry it over to this very new theme, this very new crisis, both policy and political of corporate corruption and responsibility -- Aaron.
BROWN: There's another quote from the campaign I just recalled. I'll paraphrase it, but it went something like, You can't sue and get clean water and clean air. The president making the argument that he has always been more in favor of cooperation than regulation, but here he finds himself demanding regulation, that self regulation, the president said, is not enough.
KING: Self regulation not enough. Essentially again, the president saying that corporate America has left him with no choice, and that Washington must step in, including the step, the president saying he will sign an Executive Order that creates this new Corporate Responsibility Task Force.
He called it a SWAT team, headed up by the deputy attorney general. Again, note the significant change in emphasis by this president. Since September 11, he has said the FBI needs to be reformed. Other federal law enforcement agencies need to be reformed. It's paramount to fight the war on terrorism.
BROWN: We lost John for a second. Do we have him back or not? No. OK, John, we lost you for just a moment there. Do you want to finish your last sentence or two?
KING: Just making the case at how this has changed the president's focus, this new SWAT team he calls it in the Justice Department to lead investigations of corporate America. The president has spent so much time saying all these agencies must be refocused on the war on terrorism. He's now pulling back a little, if you will, saying at the same time, he realizes his administration must deal with this growing problem.
It is a legal issue, but it is much more a psychological issue in the sense that this president is worried that if investors are afraid to invest in the stock market, the U.S. economy will drag, and that hurts this country just from a simple dollars and cents standpoint, and it also hurts any president politically if that's the case -- Lou.
LOU DOBBS, CNN ANCHOR: John, the president's caught in something of a bind here. This as you say a non-regulation, anti-regulation president, yet he is now presiding over what will be an enormous expansion and a number of regulations.
He has also been a president preaching small government. He is presiding over the largest expansion in government in more than a decade. He talks about free trade, yet he's the first to raise tariffs on steel imports. The president has a number of issues here. The administration looks a little off balance in point of fact.
KING: And, like many presidents before him, he is learning, Lou, that it is much easier to run for president than to be president and have to deal with conflicting issues and conflicting political pressures.
You're exactly right. Democrats will say this president can not lead the charge for corporate corruption, because he has been a CEO in the past. Dick Cheney has been a CEO in the past. Remember back in the energy debate, the administration argued no, they were much better off to lead the debate about energy policy because they had that experience. Democrats argue differently. The question is can this president use the bully pulpit, his own powers of persuasion to convince the American people his position is right?
You have seen on the steel issue, this president did impose tariffs. He says they are temporary, but again he did that on the advice of his political staff which said, when you seek reelection sir, West Virginia or Pennsylvania are going to be very important states.
So, when you are president, you have to deal with the competing pressures on you, and the number one priority for any president, even a president leading a war on terrorism, is to keep an eye trained, like a laser, on the U.S. economy. I use the term "laser" because that was what Bill Clinton promised when he defeated this president's father.
This president running for president, and as president, frequently cites the lessons he learned from watching his father's administration. So, even as he leads that war on terrorism, he would never take his eye off the economy. He realizes right now, he has a serious problem on his hands.
DOBBS: Yet, for the first time, Aaron, on July 3, the Pew Research Poll showed for the first time more than 60 percent of those surveyed think the president should be doing, and must be doing more to improve the economy. Yet, our own poll yesterday, the CNN-USA Today Gallup Poll, showed that more people blame President Clinton for the malaise, the level of corruption in corporate American, than do President Bush.
BROWN: It's a little hard to square the two, but in the end come November, President Clinton's not going to be on the ballot. A lot of congressional and Senate Republicans are, and the degree to which there is fallout has to make the president nervous.
DOBBS: We should point out the president won't be on that ballot.
BROWN: The president will not be, not for a while, a couple more years yet. Patty Sellers is with us of "Fortune" magazine. She covers CEOs, the boardrooms of the country. Tell me how you think this is going to play, what the president had to say, and where the president is going among the men and women that you write about.
PATRICIA SELLERS, SENIOR WRITER, "FORTUNE": Well, the president really did lay groundwork in terms of putting restrictions that will improve personal responsibility, but he really didn't go very far. I was surprised too, like Lou was, that he didn't mention anything about stock options. You know, this is really the root of the mismanagement and the manipulation at companies, not necessarily fraud, but the emphasis on short-term earnings gains that hurt the ability of the company to perform well long-term. And, he also didn't mention anything about a requirement for high-level executives to hold on to their stock for a period of time.
Right now, there are no rules and a lot of people, including Hank Paulson, the head of Goldman Sachs, believe that there should be.
BROWN: As much as I want to avoid the technical stuff here, I don't think we can on this. The two of you now have mentioned, Lou and Patricia here both mention the stock options thing. Why, Lou, is this so important for us to understand?
DOBBS: Because it is fundamentally, as Patricia said, it is fundamental to the level of compensation that CEOs have become used to receiving over the course, particularly of the last five or six years, emanating in large measure from the technology sector. But the fact is, companies not charging their income statements, writing up hundreds of millions of dollars.
You have a situation in which Larry Ellison, a founder, could receive $700 million in compensation. Jerry Levin the former CEO of AOL Time Warner, to put this in total context, receiving $160 million the previous year in compensation for a company whose stock is now in the mid-teens, and these examples go on and on.
BROWN: And just for those people who perhaps are the least sophisticated on some of this stuff, and I'll put myself in that, what an option is, it's not money. It's the right to buy stock at theoretically a really good price, lower than it's trading at, right?
DOBBS: Well, typically, not lower than it's trading at. Typically, where it is, the strike price as it's called, but for a future exercise, the presumption being and the assumption being that the price will be higher at that time. The real issue for the stock option for the CEO who receives these, and other top corporate officers and others in the company, is that there's no downside. There is no risk whatsoever. And, Patricia, I don't know whether you would agree with this or not, but I see that as a major issue. It has also deluded of shareholders, and typically the shareholder has no right in voting...
BROWN: Meaning, the company in fact is worth less because it has to issue more stock?
DOBBS: Correct, and that influences the earnings per share, which is the basis upon in most cases a price is struck.
BROWN: And, I continue to do Investing 101, it is non-risk because the worst thing that happens is you don't lose any money. You just don't get the money that you might have gotten if the stock had soared.
DOBBS: And it becomes blatantly, and Patricia again, I will invite you to comment on this, to corroborate or argue with me, but to me the stock option focus the CEO, the senior management team, indeed the company on short-term results. Drive the stock price. Forget about the assets that are built. Forget about the quality of the business, the fundamentals of the business drive for that short-term focus and in some cases, the temptations. The incentives were just overwhelming to the point that we have seen things like WorldCom. We've seen Enron, the most egregious example of that. Do you agree, Patricia?
SELLERS: Absolutely, and you know these were introduced as incentives that would tie the goals of management with the goals of shareholders, but they totally backfired, and what happened is that management was incentive to make their quarterly numbers at any cost, manipulate the earnings.
And then you know in the case of WorldCom, you had the CFO, Scott Sullivan, cashing out his options, selling his stock, ending up at the end with having sold over $10 million worth of stock, and holding at the end only 5,000 shares, which is despicable for a CFO of a major company.
DOBBS: The fact is that there was -- 20 years ago, there was a requirement, an expectation, a fundamental precept in corporate America that the CEO, the top management team, would be invested in their company. They would have ownership to whatever measure they could, given their financial condition.
Today, options are handed out like confetti, many of them worth precisely the same as confetti, but it has really been a change. And, the idea of aligning CEOs, management, with shareholder interest is an interesting concept, because in point of fact, CEOs and management are the hired help, just like you and me, Aaron, and they have a job to do.
BROWN: Not that they work like you and me though.
DOBBS: They work for the shareholders. They work for the board of directors. That has all been inverted, and I think is fundamental to the ills that we're all experiencing and witnessing in corporate America, Wall Street, and throughout the system.
BROWN: We're talking about this whole question of stock options because of what the president didn't say, because he didn't address this question in his talk. He did talk about a lot of other things broadly, but he didn't talk about that.
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