For Immediate Release
Office of the Press Secretary
July 9, 2002
Summary: A New Ethic of Corporate Responsibility
A New Ethic of Corporate Responsibility
Today in New York President Bush will call for a new
ethic of responsibility in America's corporate community. The
President wants to expose and punish acts of corruption, move
corporate accounting out of the shadows, and protect small investors
and pension holders. The President will unveil tough new criminal
penalties and enforcement provisions to punish those who refuse to
play by the rules and threaten to undermine the integrity of our
The Administration's Strong Record of Enforcement & Reform
- The President will sign an Executive Order creating a
Corporate Fraud Task Force to provide direction for investigations and
prosecutions of criminal activity. The Task Force will provide
oversight and enable improved inter-agency coordination of civil and
- The President proposes doubling the maximum prison term for
mail fraud and wire fraud to ten years (mail fraud and wire fraud
statutes are often used in cases involving corporate wrongdoing).
- The President calls on the U.S. Sentencing Commission to
enhance prison time for criminal fraud when committed by corporate
officers and directors.
- The President proposes strengthening laws that criminalize
document shredding and other forms of obstruction of justice.
- The President proposes new provisions to strengthen the
ability of the Securities and Exchange Commission (SEC) to freeze
improper payments to corporate executives while a company is under
- The President calls on public companies' compensation
committees to prevent corporate officers from receiving loans from
- The President challenges CEOs to comply with the spirit of
existing disclosure rules by explaining how their compensation packages
are in the best interests of their companies' shareholders, and
describing in plain English in their companies' annual reports every
detail of their compensation packages.
- The President urges Congress to take immediate action to pass
the $20 million funding increase requested earlier this year so that
the SEC can hire 100 new enforcement officers. The President also
urges Congress to provide an additional $100 million in FY 2003 to
enable the SEC to hire more enforcement officers and provide them with
state-of-the-art technology. The new funds -- combined with the
President's proposed FY 2003 budget -- represent more than a 20 percent
increase for the SEC in FY 2003.
- The President calls on the nation's stock markets to require
that a majority of a company's directors be truly independent so that
they have no material relationship with the company. The President
also calls for all members of a company's audit committee, nominating
committee, and compensation committee to be truly independent.
- The President calls on the nation's stock markets to require
listed companies to receive shareholder approval for all stock option
- DOJ prosecuted Arthur Anderson for obstruction of justice and
the firm was found guilty.
- On June 27, the SEC issued an order requiring CEOs and CFOs of
the largest companies (947 companies, each with annual revenues in
excess of $1.2 billion) to personally re-certify the accuracy, fairness
and completeness of their disclosures through the prior fiscal year.
- Since the President unveiled his reform agenda on March 7, the
SEC has sought the disgorgement of compensation and trading profits,
including bonuses and stock options, in four new cases -- equal to the
number of cases that were brought during all of last year.
- The SEC has already sought 54 officer and director bars in
court proceedings in the first eight months of this fiscal year -- 40%
more than were sought in fiscal year 2000.
- On June 20 the SEC proposed strong new rules to create an
independent regulatory board to oversee the accounting industry and see
that the accounting profession is held to the highest ethical
- The SEC has proposed new rules that require companies to
disclose their "critical accounting" choices in their public filings.
- The SEC has proposed new rules will to accelerate the filing
deadlines for quarterly reports (45 days to 30 days) and annual reports
(90 days to 60 days).
- The SEC has proposed rules to more than triple the list of
items that must be reported between filing periods -- including insider
sales of stock, loans made to executives by companies, departures of
the company's executives and gain or loss of material customers.
- The SEC has proposed rules to require corporate executives to
personally vouch for their companies' public disclosures.
- The SEC has proposed rules to require that most corporate
director and officer transactions in their companies' securities and
other financial instruments must be filed within two business days.
Currently, corporate insiders are not required to file reports of their
activities in their company's stock for periods of up to 410 days.
- The SEC is seeking to require that all public companies have
independent audit committees that will have the sole responsibility of
hiring, firing and retaining independent auditors.
- The SEC is drafting rules that will ban all non-audit
services, unless approved in advance by an independent audit committee
of the board of directors. The SEC is also seeking to improve
disclosure rules so that investors can have a better understanding of
the fees paid to auditing firms and their affiliates.
The President's Comprehensive Corporate Reform Agenda
Today's tough new enforcement initiatives build on the 10-point
reform plan the President announced in March. The President
has an aggressive corporate reform agenda:
- Expose and punish acts of corruption;
- Hold corporate
officers more accountable;
- Protect small investors and pension
- Move corporate accounting out of the shadows;
- Develop a stronger and more independent corporate audit system; and
- Provide better information to investors.
Exposing and Punishing Acts of Corruption -- Holding Corporate
Officers More Accountable
The Administration will use the full weight of the
law to expose and punish corruption. Corporate officers hold offices
of high trust and they should face stiffer penalties when they
break the law. Corporate leaders who violate the public trust
should never be given that trust again. The President proposes to:
- Double the maximum prison term for mail fraud and wire fraud
to ten years, and increase the prison time served for fraud committed
by corporate leaders.
- Create a new Corporate Fraud Task Force to increase DOJ's
ability to oversee and coordinate the investigation and prosecution of
fraud and related criminal activity.
- Empower the SEC to freeze improper payments to corporate
executives while a company is under investigation.
- End the practice of allowing corporate officers to receive
loans from their companies.
- Prevent CEOs or other officers from profiting from erroneous
- Ensure that CEOs or other officers who clearly abuse their
power lose their right to serve in any corporate leadership positions.
- Require corporate leaders to tell the public promptly whenever
they buy or sell company stock for personal gain.
- Strengthen laws that criminalize document shredding and other
forms of obstruction of justice.
- Challenge CEOs in America to fully comply with the spirit of
existing SEC rules by explaining prominently and in clear English why
their compensation packages are in the best interests of their
- Strengthen the SEC by seeking an additional $100 million in FY
2003 for the SEC to help hire more enforcement agents and improve other
Moving Corporate Accounting out of the Shadows
The investing public
needs a true, fair, timely and accurate picture of the assets,
liabilities and income of publicly-traded companies. Greater
transparency will expose bad companies and protect the reputations of
good ones. Firms must attract investment by demonstrating their
strengths, not by hiding their weaknesses.
- An independent regulatory board should ensure that the
accounting profession is held to the highest ethical standards.
- CEOs should personally vouch for the veracity, timeliness, and
fairness of their companies' public disclosures, including their
- Firms' accounting systems should be compared with best
practices, not simply against minimum standards.
Protecting small investors and pension holders & Improving Investor Information
More than 80 million Americans own stock and many of
them are new to the market. Buying stock gives Americans the
opportunity to build wealth over the long term and create
brighter futures for themselves and their families. To
encourage stock ownership, we must make sure that analysts give
honest advice, based on honest accounting, and honest and timely
information. In addition, employees should be afforded protections in
the administration of their 401(K) plans so that they have
meaningful information, flexibility and confidence in their holdings.
- Financial statements, annual reports, and other critical
disclosure documents must be written in a straightforward, easily
- Each investor should have prompt access to critical
- Each investor should have quarterly access to the information
needed to judge a firm's financial performance, condition, and risks.
- Investors should have complete confidence in the independence
and integrity of companies' auditors.
- The authors of accounting standards must be responsive to the
needs of investors.
- Employees should be able to sell their company's stock and
diversify into other investment options after 3 years of holding stock
in their 401(K) plans.
- Employees should be able to get sound
advice on investing and diversifying their 401(K) accounts.