[Congressional Record Volume 148, Number 74 (Friday, June 7, 2002)]
[Senate]
[Pages S5249-S5251]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            CORPORATE GREED

  Mr. DORGAN. Mr. President, in recent months I have been conducting 
hearings in the subcommittee that I chair and the Commerce Committee on 
the issue of the Enron scandal.
  While conducting those hearings, I received a letter from a 
constituent of mine in North Dakota. That constituent said he had been 
an employee of the Enron Corporation for a good number of years and had 
$330,000 in his 401(k) retirement account, invested in Enron stock. And 
then, of course, Enron collapsed. Now that $330,000 is worth $1,700.
  The folks at the top of Enron made a fortune and got away with their 
fortune, and the company collapsed, the employees lost their shirts, 
and the investors lost their shirts. It is another case of the big 
doing very well, and the little losing everything they had.
  It reminds me of the verse in a song by Bob Wells and the Texas 
Playboys from the 1930s: Little guy picks the cotton, the big guy gets 
the money. The little bee sucks the blossom, the big bee gets the 
honey.
  That is what is going on too often in this country. I am more and 
more dismayed by what I am reading in the business pages, about the 
scandals at the top levels of a number of corporations in America. I 
have been reading especially in recent days about Dennis Kozlowski, CEO 
of Tyco International. Mr. Kozlowski resigned under criminal indictment 
for tax evasion, but he has been criticized for some time for the way 
his company was playing games with his books.
  Now, I don't know him. I have never met him. I did not know much 
about his company until it started making news. But Tyco's problems are 
another troubling sign about the state of our system of capitalism, the 
system by which companies accumulate money in a corporate structure, 
and the system by which people are compensated for their performance.

  I will speak about this in a moment. But first let me mention another 
aspect that troubles me about Tyco's story. Because Tyco is one of 
those companies that, recently, decided to move its corporate 
headquarters off-shore, to avoid paying their fair share of taxes.
  In the middle of a war against terrorism, it is unconscionable for an 
American corporation to forsake its country and move off-shore--in a 
so-called ``inversion''--to avoid paying taxes. It really raises 
questions of patriotism, in my judgment. Who do they think should fight 
this war on terrorism? Who do they think ought to pay for the war 
against terrorism? Who do they think protects their assets and their 
company and their business? They want the protection of the U.S. 
military, but they do not want to pay for it.
  Tyco is one of the world's largest manufacturers and services of 
electrical and electronic components, as

[[Page S5250]]

well as undersea telecommunications systems, the largest manufacturer 
of fire protection, and electronic security services. Mr. Kozlowski 
resigned because, according to the allegations, he evaded more than $1 
million in sales taxes on works of art that he acquired by Renoir, 
Monet, and others.
  I am very interested in the information that has come to light after 
Mr. Kozlowski's resignation, criticism of the way he ran the company. 
He became CEO of Tyco in 1992. He was an accountant by training. In 
1997, he moved Tyco headquarters from New Hampshire to Bermuda, as I 
mentioned. During the late 1990s, the company was in the eyes of many a 
very successful company.
  Tyco grew at an amazing pace, and Mr. Kozlowski made a killing on the 
sale of company stock and stock options. In fact, over the past 4 
years, this fellow made $325 million in compensation.
  Then in 1999, the SEC started to investigate allegations that Tyco 
was engaged in ``questionable'' accounting practices. Mr. Kozlowski 
claimed to have done nothing wrong. He said publicly he was not about 
to sell off the stock in his company. According to filings with the 
SEC, however, he sold nearly $100 million of his stock as compensation 
in the year 2000 alone.
  The Tyco stock started to drop rapidly. Tyco disclosed Mr. Kozlowski 
repaid $70 million in loans to Tyco--using company stock. Tyco shares 
lost $50 billion in January of this year. Last December, the value of 
this stock was $60; last night, $14.
  So it is the little guys, the investors, the folks who put their 
money in Tyco stock who did not do very well. Mr. Kozlowski got $325 
million in compensation over a 4-year period.
  I have been reading about this day after day after day, and it 
reminded me of the movie, ``Wall Street.'' That movie had an infamous 
character played by Michael Douglas, named Gordon Gekko. And that 
character delivered the often quoted words: ``Greed is good. Greed is 
right. Greed works. And greed, mark my words, will save . . . that 
malfunctioning corporation called the USA.''
  That movie came out in 1987. By today's standards, Gordon Gekko seems 
like a Boy Scout.
  The average compensation of the 10 highest paid chief executive 
officers in America, 20 years ago, was $3.5 million. That was their 
average compensation. Mr. President, $3.5 million a year was a pretty 
good compensation package then, and it would be a pretty good package 
today. But do you know what it is today? It is $150 million. The 
average compensation of the 10 most highly compensated CEOs in the 
country is $150 million a year.

  Here is a list of some of the compensation paid to CEOs in the year 
2000: $290 million, $225 million, $157 million. These are yearly 
compensation figures.
  In the 1980s, when the movie ``Wall Street'' came out and Gordon 
Gekko was saying that greed was good, the average pay of a corporation 
head was about 42 times the pay of the average worker. Today, a CEO's 
pay is about 531 times greater than that of the average employee 
working for the corporation.
  In one of my hearings on the Enron Corporation we found that Mr. 
Fastow, who was the CFO of the Enron Corporation, had a little 
partnership deal that he constructed. Even as an employee of the 
corporation--highly paid, I might add--he constructed partnerships, 
that were attached to the corporation, in which he had equity pieces 
and then got a commission to manage. He put $25,000 of his own money 
into one of these partnerships, and 60 days later took out $4.5 
million.
  I come from a really small town--300 people--with a very small 
school--9 in my senior class. But it does not take higher math to 
understand what cheating is all about. The hearings I have held on the 
Enron Corporation have described a culture of corruption and cheating 
and, in my judgment, criminal activities. The hearings I have conducted 
on Enron with respect to West Coast electricity pricing suggest to me 
rigging of electricity prices to the tune of billions, perhaps tens of 
billions, of dollars.
  There is something rotten going on inside some of these 
corporations--not all of them, but some of them. And who stands to 
lose? The big guys make off with millions and millions of dollars--in 
most cases tens and hundreds of millions of dollars--and the little 
people lose their shirt.
  If I might show some additional charts that describe this saga. The 
pay of American corporate executives is not even related to performance 
anymore. CEO pay was up 7 percent last year. Profits are down 35 
percent. What kind of business do you see that in? The worse they do, 
the more they make? What kind of accountability exists with respect to 
the stockholders across this country, the moms and pops who have put 
their money in their retirement accounts in these companies, believing 
these people are doing a good job?
  I mentioned Enron because I have spent a lot of time on that issue. 
In 1998 the president was Mr. Ken Lay, who claimed not to have the 
foggiest idea of what was going on inside his company. If ever there 
was an ``Onward through the fog'' voice from a CEO, it came from Mr. 
Lay. But he got $101 million in compensation for his services, through 
his sale of Enron stock.
  Jeffrey Skilling testified before my subcommittee for about 6 hours. 
Nobody had the foggiest idea what he said. He apparently served in that 
corporation as one of its top executives. He heard nothing, saw 
nothing, participated in nothing, and decided he did not want to be a 
part of it anymore. It was the most byzantine hearing I ever held in my 
life. Here is a guy who claimed to be oblivious to fraud of the largest 
scale, and walked away from the company with $70 million in stock.
  A couple of weeks ago the CEO of Adelphia, the sixth largest cable 
company in the country, resigned. We now discover, as a result of the 
10-K financial statements that are filed with regulators, that Adelphia 
had $2.3 billion in debt, that was hidden off the balance sheet. Most 
of that was owed to companies that the CEO's family controlled, and 
that could not be paid back--$2.3 billion.

  Almost all across this country now, workers in corporations--that is, 
the folks who make corporations function--are discovering that they no 
longer have defined benefit pension programs. That used to be the bulk 
of the pension programs. Now it is diminished to less than a fourth.
  While the workers in a corporation are discovering the erosion of 
their pensions, the compensation at the top of these corporations is 
skyrocketing, in no relationship to how the corporation is doing.
  This next chart also shows something interesting, and deeply 
troubling. The corporations in this country are paying a smaller and 
smaller percentage of the tax burden in our country. Payroll taxes--
which hit the lowest wage earners in the country much harder than the 
top wage earners in the country--are growing as a portion of our tax 
burden. And these corporations, as I mentioned, are now increasingly 
looking to save taxes by renouncing their U.S. citizenship.
  I know many corporations are responsible, and would never consider 
running off to Bermuda to avoid taxes. But some of them are doing so, 
and shame on them. Where is their sense of patriotism here? We are at 
war against terrorism, and we have corporations making a decision they 
don't want to be American anymore, they don't want to have an American 
identity, because to do so you have to pay taxes and pay a portion of 
the cost of the burden of government, which includes providing for the 
common defense and paying the wages and salaries of the men and women 
and the equipment in our armed services. Shame on people who think like 
that.
  Franklin Roosevelt, in one of his fireside chats, said:

       Not all of us can have the privilege of fighting our 
     enemies in distant parts of the world. Not all of us can have 
     the privilege of working in a munitions factory or a 
     shipyard, or on the farms or in the oil fields or mines, 
     producing the weapons or raw materials that are needed by our 
     Armed Forces. But there is one front and one battle where 
     everyone in the United States--every man, woman and child is 
     in action. . . . .That front is right here at home, in our 
     daily lives, and in our daily tasks. Here at home, everyone 
     will have the privilege of making whatever self-denial is 
     necessary, not only to supply our fighting men [and women], 
     but to keep the economic structure of our country fortified 
     and secure. . . .

  When I read this and compare it to the stories about American 
companies

[[Page S5251]]

moving their headquarters to a mailbox in Bermuda just to avoid paying 
taxes, I say shame on them.
  I think we have to begin to think, here in the Congress: What do we 
do about the crisis in corporate governance in an increasing number of 
American firms? Where will it go?
  When the average corporate executive in this country is now making 
530 times the average compensation of workers in the corporation, isn't 
there something wrong here?
  We have seen speculative bubbles recently, bubbles that are unhealthy 
in our economy. Is this not just another unhealthy bubble that is going 
to break at some point? Will the American people trust corporate 
governance when we have people at the top who are taking hundreds and 
hundreds of millions of dollars out themselves and are not worried 
about the long-term financial solvency of the corporation, but worried 
only about what their compensation does relative to the stock value in 
the next quarter? Because their compensation is tied to short-term 
stock prices, they may have $50 million, $100 million, or $200 million 
at stake for them personally.
  Will the American people trust corporate governance when we see 
corporate executives such as Mr. Lay, Mr. Skilling, Mr. Fastow, and 
others cashing out and putting millions and millions into their bank 
accounts even as they are telling employees, ``Hold onto your stock. 
Tomorrow is going to be a better day. Our future is brighter. Hang onto 
your stock, don't sell''--even as they are furiously selling off their 
shares privately in order to enrich themselves?
  There are some legislative measures that we ought to consider, in my 
judgement. I will talk more about them later. Today, I wanted to raise 
some public questions about the state of corporate governance in our 
country, and the erosion in confidence in our economic system. And to 
say that we have some work to do on this issue.
  Mr. President, I yield the floor.

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