[Congressional Record Volume 148, Number 93 (Thursday, July 11, 2002)]
[House]
[Pages H4534-H4540]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CORPORATE ACCOUNTABILITY
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 3, 2001, the gentleman from Pennsylvania (Mr. Greenwood) is
recognized for 60 minutes as the designee of the majority leader.
Mr. GREENWOOD. Mr. Speaker, it is fitting that this new hour follows
that last 5-minute presentation which was a perfectly classic example
of partisan rhetoric aimed more to gain political favor than to shed
light on an issue.
What we are going to do for the next hour is exactly the opposite,
that is, my colleagues from the Committee on Energy and Commerce are
going to talk about how we can, in bipartisan fashion, deal with the
corporate malaise, the corporate scandals that have
[[Page H4535]]
rocked our country to make sure that American investors are in better
shape and enjoy more confidence in the market in the future.
We are here to talk about the best way to ensure corporate
accountability, restore investor confidence in our markets, and build a
21st-century model of corporate governance that will give us an honest,
open, transparent and efficient marketplace.
Before I am joined by my other colleagues, I want to describe the
challenges we in Congress, the administration, and the overwhelming
number of honest men and women who run our country's publicly traded
companies face in this effort. I want to begin by placing our work in
the larger context of the remarkable events that have occurred in the
executive suites of some of America's largest corporations and the
unsettling erosion in corporate accountability.
What we have been witness to this year with the collapse of WorldCom,
Adelphia Corporation, Tyco International, ImClone, Enron, and Global
Crossing is almost beyond comprehension. Certainly the markets
themselves remain confused. The Standards & Poor stock index is down 17
percent since the year began, and as Business Week reported, ``The
inability of investors to distinguish honest companies from dishonest
ones have caused them to sit on the sidelines. They are not buying.''
More disturbing, however, is the behavior of overseas investors. They
are getting out. They are selling off their holdings and driving down
the dollar, which has slipped 9 percent against the Euro since
February.
Clearly we need in bipartisan fashion to take every reasonable and
prudent step to restore confidence in our markets. But in doing that,
we need to remember that this decline in the character of corporate
governance did not occur overnight. What we are now experiencing are
the terrible costs of the 1990s corporate culture that placed too high
a premium on the effort to do well at the expense of doing what is
right.
Look at the evidence. While there will probably be nearly 250
corporate earnings restatements this year, the number has been mounting
since the mid-1990s. For example, while there were 157 financial
restatements last year, there were nearly 200 in 1999, and 100 in 1998.
The cost to investors has been high. It is estimated in a just-released
study that these restatements resulted in total market value losses of
$31.2 billion in 2000, but 1998 and 1999 restatements which accounted
for market value losses of roughly $18 billion and $24 billion
respectively were disturbing as well.
This brings me to a remark of one of our witnesses, Professor Bala
Dharan of Rice University. He made it 2 weeks ago at our first hearing
on the reform of the Financial Standards Accounting Board. When I asked
if perhaps the boards of directors of our largest companies were too
busy at the shrimp bowl to pay attention to their duties, his reply was
that they were either ``snoring or ignoring.''
Then he went on to make what I believe was a chilling and sobering
observation. Commenting on the events that led to the unraveling of
firms like WorldCom, Tyco, and Enron he said, ``What is going on is
that this is a case that involves an enormous number of people, and
that is why I refer to them as financial engineering rather than just
accounting. In order to do this, you also have to have the compliance
of lawyers and investment bankers from the outside.''
He then concluded, ``We are witnessing a comprehensive approach to
financial engineering that has been going on for the last 5-10 years.''
This is what we are confronting in our markets and in too many
executive suites, a complex web of self-dealing and private
arrangements which were conceived in a culture poisoned by a downward
spiral in corporate ethics and management character.
This spectacular explosion of the Enron supernova brought all this to
light in a dramatic fashion, but it did not happen overnight, nor can
we hope to restore the integrity of our markets and the character of
the men and women who run America's publicly traded companies without a
long-term commitment to comprehensive reform in a wide array of areas.
We believe that our Republican approach both in the Congress and the
White House embraces nearly all of the steps needed to accomplish our
goal. We also believe that there is broad agreement by the members of
both parties on nearly all the critical issues that need to be
addressed.
I would be remiss if I did not mention that there will be a
temptation in this political year to play up partisan differences by
Members on both sides of the aisle. The heated rhetoric of the past few
days has convinced me, and no doubt many others, that there are some in
this body who are more interested in acquiring political capital than
in protecting the financial capital of America's investors.
As we are a political body, nobody should be surprised at this. But I
am asking my colleagues to remember this: what we are dealing with is
very large, and it is about so much more than money or crime or greed,
although there has been plenty of that. We must restore investor
confidence and market integrity in the most potent weapon in
democracy's arsenal, free markets directed by a free people. This is a
sobering task, and my hope is that each of us will bring the level of
seriousness and cooperation to it that allows us to achieve our common
goal.
{time} 1745
Mr. Speaker, I yield to the gentleman from New Hampshire (Mr. Bass).
Mr. BASS. Mr. Speaker, I thank my friend from Pennsylvania for
yielding to me.
I have to say in the 8 years I have been here, at no time has it been
more painful for me to listen to partisan rhetoric associated with an
issue than has been the case in this debate. The issue of corporate
governance is not a Republican issue or a Democratic issue; it is not
the fault of one administration or another. Certainly the problems
arose and occurred during the previous administration, but I do not
blame the previous administration, any more than I blame this
administration.
We will not solve these problems, we will not address these problems
proactively and effectively, by pointing fingers at each other and
trying to accuse each other and make political hay out of a situation
that demands calm, pragmatic and cooperative work on the part of
everybody in this body to come up with a solution that restores
confidence and creates growth and begins the process of growth again in
our economy.
Mr. Speaker, I want to commend the work that has been done by our
President and the speech that he made earlier this week in New York
City. I want to pay particular attention to the exhaustive hearings
that have been held by both the Subcommittee on Oversight and
Investigations and the Subcommittee on Commerce, Trade, and Consumer
Protection over the past 6 months.
Some of these hearings were held well before the crisis erupted to
the point where it is today and may have in their content given
regulators significant assistance and information and a prodding, quite
honestly, to move forward and to make changes that may be way overdue.
Let me just say from the outset that the problem we face in corporate
America is that there are a few very bad apples that have broken the
law, and, as our distinguished committee chairman has said on a number
of different occasions, these individuals should be prosecuted to the
fullest extent of the law and they should be sent to jail, just like
any other common criminal in this country. There is no difference
between stealing money from investors and robbing a bank and stealing
money or shoplifting in a store, except it is more serious, and they
ought to go to jail for it.
Secondly, as I alluded to in the beginning of my comments, the
solution to this problem should be bipartisan, bipartisan. The more we
talk about whether it is a Republican's fault or a Democrat's fault,
the harder it is going to be to come to a good, quick, effective
solution, and the only people who are going to suffer from that are
going to be consumers, investors, retirees, parents and families. So it
is time we got together and cut out this partisan discussion.
Thirdly, I think we should direct regulators to move expeditiously to
clean up the problems that we face and provide recommendations, which
we have done in two pieces of legislation, one
[[Page H4536]]
that was marked up by the Subcommittee on Commerce, Trade, and Consumer
Protection yesterday and another one passed earlier by the committee.
But what we should not do, in my opinion, is put into statute what
should be done by regulators, because when you place ideas into
statute, they are there forever, effectively, for a long time, and
conditions in the financial world change and you have to have
flexibility to deal with problems as they arise and change things over
time. We run the risk by forcing regulators to do things that we want
or by passing laws that set regulations in statute that we will create
problems in the economy that were unintended.
Thirdly, we should be very careful not to stifle capitalism in this
country, that we should not stifle the ability of the hundreds of
thousands of honest entrepreneurs in this country and hard-working
Americans who are trying to make a go of it and are doing it honestly.
We do not want to turn every CPA in this country into a Federal
bureaucrat. We do not want to have chief financial officers and
executives answerable to the Federal Government instead of to their
shareholders and to their boards of directors. We want to have a system
of regulations in place that is flexible, accountable, transparent; no
more, no less.
The fact is, we cannot in Congress legislate honesty. We never have
and we never will. But we can work together as Republicans and
Democrats to assure that the rule of law applies to all and that
corporate America is held accountable. If we do this, we will get out
of this problem quickly and we will look at a bright and prosperous
period of economic growth in the years to come.
Mr. GREENWOOD. Mr. Speaker, I thank the gentleman.
I yield to the chairman of the Committee on Energy and Commerce, the
man who has been leading us in all of these investigations, the
gentleman from Louisiana (Mr. Tauzin).
Mr. TAUZIN. Mr. Speaker, let me first thank the gentleman from
Pennsylvania (Chairman Greenwood) for the extraordinary job he has done
and the members of the Subcommittee on Oversight and Investigations of
the Committee on Energy and Commerce in the now many-month-long series
of investigations beginning with the Enron scandal and the series of
hearings we had, exposing what we found to be massive, in our opinion,
fraud and massive cooking of the books at that corporation, and the
subsequent investigations that are ongoing even today in the failure of
other corporate managers and boards of directors which have led to much
of what we see, the carnage on Wall Street and the loss of millions and
billions of dollars, in fact, in investor funds over the last year or
so.
Those hearings and those investigations began as we learned of the
serious problems at Enron. Our investigative staff, as you know, began
working throughout over the Christmas holidays gathering information
that was available to us. We uncovered the fact that Arthur Andersen
employees were shredding documents, and we had to have hearings in
advance of our hearings on Enron to expose that problem. That, as you
know, has led to a Federal indictment and now a conviction.
We had to literally examine thousands and thousands of documents, and
in those documents we found indeed the whistleblower memo that told us
an awful lot about what had happened and what was going on at Enron
that caused it to collapse and why, in fact, all the special
partnerships and the outside special entities that were created were
designed, not for economic reasons, but simply to hide debts and
inflate income.
We have seen that replicated now in a number of different cases that
the gentleman from Pennsylvania (Chairman Greenwood) has already
mentioned and that most of us know about now, including with the latest
criminal investigation announced of Quest Communications and the
collapse of WorldCom on the world stage.
The one thing that we have learned out of all of these hearings is
that when greed is unchecked by the fear of discovery, a lot of bad
things happen. I suppose it is a little bit like having a lot of great
laws against bank robbing, but then leaving the doors open and telling
the policeman to go home, and then being surprised when somebody robs
the bank.
Banks get robbed and laws can be as strong as we want to make them,
but we still need good policemen on the beat and still need good laws
to ensure that vaults are secure at night and managers of banks take
care of the money in the bank on behalf of those who put their trust
and their confidence and money in those banks.
So is it true with corporate America. More and more Americans are
invested now in publicly traded companies. More and more Americans,
without even knowing it sometimes, have their pension funds invested in
corporate America and public funds. More and more Americans directly
now invest over the Internet and trade stocks every day in the stock
market. More and more millions of Americans, in fact, are now owners of
American corporations, instead of just the few who might have owned
them in years past. So more and more millions of Americans have a great
stake in the way corporate America behaves.
The notion that corporate governance in the cases of these massive
failures has now let these Americans down and that workers have been
put out of their jobs and that pension funds have been devastated, not
simply at the companies where those workers have their pension funds,
but all the pension funds around America that were invested in these
companies, the notion that that is happening in America at a time when
we should have indeed a strong protective system at the SEC, we should
have indeed strong enforcement of our laws, we should have boards of
directors who carefully are representing the interests of those
millions of American owners of American corporations, the notion that
that could happen has literally shaken, I think, American investor
confidence in this system, and we need to restore it quickly.
Now let me say something, Mr. Speaker, that I think needs to get
said. The reason why our committee has been so passionate about what we
have found and what we are learning about the failures in corporate
America is that our committee is the Committee on Interstate Commerce.
It is the oldest committee in this Congress. It is the only one
mentioned in the United States Constitution.
Our Committee on Interstate Commerce has been for many, many years
the committee that literally bears responsibility for making sure that
the commerce of our country is conducted properly, that the economy of
our country is strong, that its laws and regulations and the
institutions that guide our economy are well-funded and operate well.
To the extent this is happening on our watch, we have a responsibility
to fix what is wrong and to make better laws and regulations to make
sure it does not happen again.
But it also offends us more than anyone else. As defenders of the
free market system, as people who have fought to make sure that free
enterprise and the capital markets were allowed to flourish in America,
as opposed to those who would like to strangle them with regulations
and socialize many conditions in this country, we are the most offended
when bad players, when corporate criminals mess it up for all the good
players in this country, the thousands upon thousands of small business
corporations and medium-sized corporations and even the large
corporations in this country who do it right.
That is why we become so offended when some in the accounting
industry violate their trust with so-called aggressive accounting and
cook the books in a sense in collaboration with crooked executives to
make it look like the companies are doing better than they should be,
and then to take off with the stock and to sell it, where the pension
holders cannot sell their stock, or while the rest of America who is
invested in the company finds out they have lost so much of their
savings.
That is why we are so passionately angry about what has occurred and
why our committee is so desperate to get all the facts and to
understand what is wrong with this system and to fix it so it does not
happen again.
We are engaged today at our committee level in an investigation of 13
companies who have seen similar failure like Enron, who have gone
through
[[Page H4537]]
some efforts to either hide debt or inflate income beyond that which
really existed, some effort to convince investors they were doing a lot
better than they really were, and have now collapsed, and we have seen
the loss of millions and billions of dollars to those investors.
We are investigating those 13 companies right now and looking
particularly at the boards of directors. We are very interested in
knowing who those boards of directors were, how were they selected.
Were they selected to represent the interests of the investors, or were
they selected to represent the interests of the managers? Were they
selected to be the CEO's men and women on the board of directors, or
were they selected to represent the interests of the real owners of the
corporation, the American investors who put their hard-earned dollars
into a belief that those companies were being run properly?
It shocked us in the Enron hearings to see how little the boards of
director members who testified before our committee knew about what was
going on, how much they took at faith the statements of the executives
in that company that everything was okay and they were doing everything
correctly and they should not ask any hard questions. It shocked us at
how little the audit committees had done in reviewing those special
partnerships in those entities created to hide debts and inflate
income. It shocked us to think that those people who were serving on
some of the most prestigious boards in America knew so little about
what was really going on in their corporations, or at least claimed to.
So we are going after that issue. We are going to find out what is
happening in the boardrooms of America.
There is some good news out of all of this. The good news in the face
of all this carnage is that changes are occurring in corporate
boardrooms of America. CEOs no longer have a friendly visit to their
boards, they tell me. Boards are beginning to ask tougher questions.
CEOs are having to answer the tough, hard questions about how their
accounting is done. Accounting firms are beginning to have to answer
hard questions by the audit committees and the finance committees of
boards across America.
There is a sea change going on. On Wall Street, reforms are being
recommended to separate those analysts who work for the investment
houses, to separate them so people are not putting lipstick on ugly
pigs and selling them to us as beauty queens.
{time} 1800
We are beginning to see that change is being made at the SEC as they
are recommending independent boards, and legislation is moving through
Congress as a result of our hearings. Not only did this House, but the
Senate now is taking up bills to deal with some of the issues of
accounting misuse and abuses and to deal with the issues of
independence of accounting and independence of corporate governance.
Just this week our committee produced a bill to reform the accounting
standards at the FASB, the board under our jurisdiction that sets
accounting standards for America. In addition, a committee of this
House passed through this Congress a bill to protect the pension funds
of America to make sure that corporate executives could not sell their
stock while the pensioners were stuck holding theirs. That legislation
is now in the Senate waiting for final action.
The bottom line is, we are beginning to see legislative action. We
are beginning to see executive action, as the President himself has now
issued an executive order. We are beginning to see reforms in corporate
boardrooms across America and at the Wall Street offices in New York
and around the country. We are beginning to see turnaround.
So the outrage that we have seen in our committee, the ugly picture
we have seen in our committee of corporate misbehavior, corporate
criminal conduct, is at least beginning to produce some good results.
People are beginning to take it seriously. As my friends have said, the
Justice Department and others are beginning to look seriously at
indictments and, hopefully, convictions of those corporate criminals,
and reforms are literally in the wind.
So it will take a little while for investors to really feel like
things have changed, that they can put their money into an American
corporation again and really believe that the boards of directors are
going to represent them instead of someone else; who can really believe
that corporate managers are going to be looking after their interests
and not their own golden parachutes. Things are changing. The result of
these hearings, the result of our ongoing investigations, I think, are
going to build a better market for this country and beginning to have
the investor confidence that really means something again.
But if anyone in this country owes an obligation to protect this free
market system and the capital markets and how they are structured, a
free market by which this American economy has led the world, it is
those of us in Congress who serve on the Committee on Energy and
Commerce, who have been responsible for over 200 years of protecting
the interstate commerce of this country. Our committee will continue to
do its work, and we will do it in a bipartisan fashion. We will ask our
friends on the other side of the aisle, as we have always done in our
committee and who have joined us in our FASB reforms, to join us as we
go through these reforms and investigations until all the truth is
known and all the reforms are in. This is great work we do. I hope we
do it well.
I want to commend the gentleman from Pennsylvania (Mr. Greenwood) and
the members of his Subcommittee on Oversight and Investigations for the
incredible work they have done so far and, believe me, we have much
work yet to do.
Mr. GREENWOOD. Mr. Speaker, I thank the chairman of the full
committee for his remarkable remarks.
I recognize and yield such time as he may consume to the gentleman
from Florida (Mr. Stearns), the chairman of the Subcommittee on
Commerce, Trade and Consumer Protection.
Mr. STEARNS. Mr. Speaker, I thank my colleague, and I am glad to be
here and commend him for his special order on this issue.
As the gentleman knows, we marked up in the subcommittee that I chair
H.R. 5058, which is the Financial Accounting Standards Board Act, which
was introduced and passed by bipartisan support out of my subcommittee,
which attempts to bring some of these financial accounting standards
up-to-date and modern.
Mr. Speaker, in the roaring 1990s, investors were all caught in a
spiral of ever-increasing optimism about the outlook for economic
growth and stock valuations. It seemed the increase in stock valuations
would never end, but of course, it did end. History teaches us they
always do. In 2000, the so-called Internet bubble burst, and many
investors lost money, not only monies invested in an Internet company,
but also investments in leading, established blue chip companies. All
of us remember when Alan Greenspan aptly characterized the phenomena of
the stock market as ``irrational exuberance.'' All of us had sort of a
special sense of spiraling optimism.
Unfortunately, something that even Alan Greenspan did not predict has
happened. In the wake of the roaring 1990s, we have witnessed corporate
failures, bankruptcies, earnings restatements at unprecedented levels.
Established companies that may have been overvalued were expected to
weather these difficult times as business slowed, but they did not. The
culture of the 1990s created something far worse: the race to up the
earnings at all costs. Hype, hype, hype.
Of course, the first to fall was Enron. Amid its ashes, we discovered
a host of problems involving corporate governance, audit independence,
accounting fraud, and accounting standards. It would have been easier
to accept the collapse of Enron were it an aberration. That no longer,
of course, appears to be the case, given the recent news of Tyco,
Global Crossing, and WorldCom, just to name a few. There is one every
week.
These failures have put a strain on market recovery. Investors do not
trust financial statements and that undermines their trust of all
companies, good or bad. To stabilize our markets, accounting and
corporate governance systems must be improved. We on the Committee on
Commerce are committed to do that. This committee will
[[Page H4538]]
do its part by acting on that which falls within our jurisdiction,
which is accounting standards.
Now, the President just recently offered additional steps to stem the
tide of investor mistrust of the capital markets. The markets
themselves have taken significant steps in that direction, as seen in
the new rules that have been proposed by the New York Stock Exchange.
Of course, on the legislative front, the House has already passed
legislation out of the Committee on Financial Services to reform the
corporate governance and the audit system. The Senate, as we speak, is
moving towards legislation as well.
Mr. Speaker, all of these efforts have primarily been focused on
corporate and auditor governance. I believe changes to accounting
standards and the process of setting those standards is another
critical component of complete reform. I think that in addition to
procedural reforms addressing governance issues, we must also carefully
study and address substantive reform, which means that the content of
the GAAP principles of accounting must be reexamined in light of Enron-
like accounting scandals.
So that is why our bill, H.R. 5058, which passed out of my
subcommittee, the Financial Accounting Standards Board Act, is just an
important first step for improving the transparency and reliability of
financial accounting.
Now, I thought I would review just briefly what the bill does. The
bill does simply four main things. First, it gives FASB standards
Federal recognition for the first time.
Second, it directs FASB to promulgate rules in areas in which our
investigations have revealed current standards need improvement:
specifically, off-balance sheet accounting, revenue recognition, and
mark-to-market accounting.
Third, it requires FASB to promulgate a primary standard that must be
used to ensure the application of accounting rules complies with
principles of transparency and comprehensibility. This will go a long
way to preventing the abuse of accounting standards like those that
have been revealed in the oversight committee investigations, as the
gentleman from Pennsylvania (Mr. Greenwood) is involved in with Enron
and Global Crossing.
Fourth and finally, the bill requires the GAO and FASB to report on
FASB's compliance with the act and other issues relevant to the
standard-setting process.
Again, Mr. Speaker, this was within our jurisdiction and this is the
only thing that we could attack. I had an amendment in the bill which
would also create a blue ribbon commission to study accounting
standards and standard-setting processes. Specifically, the commission
will evaluate FASB's 30-year record, evaluate the role of accounting
standards, how they played in recent accounting failures, and explore
alternative standard-setting mechanisms. This commission is not
involved with governance. It is all involved with accounting standards
and the standard-setting process. The commission, of course, will then
present its findings and recommendations to our full committee.
I would like to just mention one of the witnesses that we had in our
hearing dealing with financial accounting standards, a Professor
Coffee, who is an expert; and he testified that ``Reasonable people can
disagree about the appropriate reforms that are needed to improve the
regulation of the accounting profession and, not surprisingly, quite
different proposals are currently pending in the House and Senate. But
while reasonable, and sometimes even heated, disagreement is possible
on many questions, there should be consensus on one fundamental point:
our current substantive system of accounting principles, rule-based and
hyper-technical, has shown itself to be vulnerable to exploitation by
those willing to game the system.''
So I think our passage of H.R. 5058 will move forward, and when it
moves to the full committee in the House and hopefully, to the
conference, we will be able to add, expand, and make it more
comprehensive.
Mr. Speaker, I just wanted to conclude by bringing to the attention
of my colleagues some comments from the former president of Arthur
Andersen, who gave an editorial in the Wall Street Journal, Mr.
Berardino. He was managing partner and CEO of Andersen and, of course,
we know Andersen was found by the Justice Department to be guilty of
shredding documents. But sometimes when you go to somebody who has seen
the failure intimately they can sometimes bring to bear some very
important points, so I would share with my colleagues some of his
points.
He admits we need to rethink some of our accounting standards. Heaven
knows, the Tax Code has gotten so complex. Likewise, our accounting
standards have gotten complex and technical. Enron used sophisticated
financing vehicles known as special purpose entities and other off-
balance-sheet structures to hide debt, and they did it in such a way
that no one could even understand them. In fact, the management's
discussion and analysis in their profit and loss statement was 16 pages
of footnotes. That was in its 2000 annual report.
Now, some of them, institutional investors as well as sophisticated
investors, they all studied these 16 pages. Some sold short and made
profits, but others who were also sophisticated analysts and fund
managers said, well, I may be confused, but they went ahead and bought
the shares anyway of Enron, and, of course, they lost money.
So if these people, institutional investors, fund managers, cannot
understand these 16 pages of footnotes, how can the common investor
understand them? We need to change that. We need to fix this problem.
We cannot maintain trust in our capital markets with a financial
reporting system that delivers volumes and volumes of complex
information about what happened in the past, but leaves some investors
with limited understanding of what is happening in the present and,
more importantly, what is likely to occur in the future.
So the current financial reporting system has to be changed, and I
would say to my colleagues, it was developed in the 1930s. It was
developed for the Industrial Age. That was during times when assets
were very tangible and everybody understood them. The investors who
were involved at that time were very sophisticated, but they were few.
There were no derivatives, the derivatives at Enron and all of these
organizations used to hedge their bets; none of that was happening in
the 1930s. There was no structured off-balance-sheet financing, no
instant stock quotes or mutual funds, no First Call estimates and, of
course, there was no Lou Dobbs on CNBC.
So we need to move quickly here in Congress to establish and rethink
our accounting standards and to modernize them, because I think the
public is right, they have lost credibility, and this can be changed.
The other area that I would like to discuss is the patchwork of
regulatory environment we have here. We have an alphabet soup of
institutions, from the American Institute of Certified Public
Accountants to the Securities and Exchange Commission to the Auditing
Standards Boards to the Emerging Issues Task Force to the Financial
Accounting Standards Board, FASB, to the Public Oversight Board. All of
these have important roles in our profession, in the accounting
profession, of regulation, and they are made up of very smart, very
diligent, competent people.
But the problem, I submit, is all of these alphabetized, this
alphabet soup of institutions, there are too many of them, there are
too many cross-purposes. Somehow we need to bring them all together so
they are focused better. And so the process, the whole process of
oversight of all of these different institutions I talked about, needs
to be redesigned. I do not think we should eliminate them, but I think
somehow we have to get them more flexible and more suitable for the
modern world.
{time} 1815
Lastly, I would say improving accountability across our capital
system. Two years ago, scores of new-economy companies soared. They
came out of nowhere. Of course, they had public offerings, initial
public offerings, and they went up and they collapsed in dust. A lot of
investors questioned their business model and prospects. The dot-com
bubble cost investors trillions of dollars.
So I think if we come together in a bipartisan fashion and look how
to increase the market's integrity, I think
[[Page H4539]]
we can do it. I think some of the comments from the former managing
partner and CEO of Andersen are some ideas we should think about, and I
think some of the things we have started in my bill, H.R. 5058, that
came out of my subcommittee, is another good start for reforming the
accounting standards in this country. I look forward to continuing this
process.
Mr. GREENWOOD. Mr. Speaker, I thank the gentleman from Florida for
his contributions in this Special Order, as well as his very excellent
contributions in the leadership of his subcommittee.
Mr. Speaker, to underscore the importance of this issue, I would like
to make a few more remarks.
America's place in the world, our leadership place in the world, is
derived in many respects from the character of our people. It is
derived in large measure from the nature and the beauty of our
Constitution; but it is also derived in no small manner from our
wealth, from our economy, the strength of our economy.
Our wealth as a Nation is the wealth that produced the military
apparatus that fought wars and preserved democracy, that overcame
Communism, that just liberated Afghanistan. Our wealth as a Nation is
the wealth that is used to pull people from poverty into middle-class
luxuries. Our wealth as a Nation is the wealth that enables us to find
cures for diseases.
Also, our wealth is derived from our marketplace. Our wealth is
derived because our marketplace is extraordinary in its ability to
allow Americans to use their savings, and we are not good at savings in
this country. Compared to the rest of the world, we save very little.
But our marketplace is so efficient that the relatively meager savings
of America can be used in the marketplace so that investment goes to
the most productive companies and to the brightest ideas. That has
enabled us to create a level of productivity that is unrivaled in the
world, even by those nations that save far more money than we do,
because we have this efficient market.
Now, the efficiency of that market is completely dependent upon the
notion that investors can, on a regular basis, look at the
independently audited financial statements of companies and make a
decision about where they want to make their investments.
They want to make their investments in companies that are doing well,
that are showing progress, that are showing profit, that are showing
promise. They get to make a decision. They get to decide if they want
to take a lot of risk in the marketplace. If they think they have
analyzed a company and it has a promising product, if it has not made
it yet, but may emerge and may solve a problem in this country; or they
may take a high risk; or they may decide to take a little bit of risk
and invest more modestly. But they do that based on their ability to
trust the audited financial statements that these companies put out
pursuant to law.
Now, what has happened? What has created this problem? What has
created this problem is that the companies that we have seen in the
headlines of America's newspapers are companies who refused to abide by
the simple premise that they have a responsibility to issue audited
financial statements that can be believed.
They have decided to do what is called ``managing revenues,'' not
just reporting their revenues, not just saying to their auditing
committee, how much money did we make this year, what were our
revenues, but saying to their auditors and accountants, how can we
boost those revenues above what they really were? How can we phony up
the numbers?
Why did they do this? They did this because, particularly in a market
which was heavily invested and experiencing this bubble, they did it
because they knew if their revenues began to fall, if they did not meet
expectations, investors might take their money and go elsewhere. That
is one reason they did it.
Another reason they did it in some of the worst cases is because
corporate executives had stock options, and they knew if they could
push the revenues up way beyond where they really were, if they could
report revenues way beyond the actual revenues of the company, that the
stock prices would follow, and then they could cash out, sell their
stock at a very high price, and yet leave a company or leave the rest
of the investors with a company that really was a phony company and a
false company and a company that did not have the value that they had
reported in their own financial statements.
This is not the first time that this kind of thing has happened in
our history. We went through a savings and loan debacle which cost the
American taxpayers and investors billions of dollars. We went through
problems with junk bonds.
I was reading a book over the last week called ``Financial
Shenanigans.'' There was a story, a true story, about a man whose
business was vegetable oil. He was bringing in, or allegedly bringing
in, boatloads of vegetable oil to this repository. He would impress his
investors with all of the vegetable oil that he had accumulated; and
they were investing in this product, in this market that he had.
What they did not know was that he had a vast system of underground
piping that pumped water into the tanks. The vegetable oil was just a
thin veneer that sat on the top of the water. So the researchers and
analysts and underwriters would come, and he would take the tops off of
his tanks and say, Look how much vegetable oil I have, millions of
gallons of vegetable oil, when in fact it was all a phony scheme.
This is not unlike what we have seen in the marketplace here. The
kind of reforms that we take here in a bipartisan fashion are going to
have to have the effect on this corporate greed that ultimately
happened when they let the water out of the tanks on this gentleman's
vegetable oil barrels.
Mr. Speaker, I yield to the gentleman from Louisiana (Mr. Tauzin),
the chairman of the full committee.
Mr. TAUZIN. Mr. Speaker, I wanted to cite another example of how the
gentleman's committee has worked on a problem in America that was
awful, the Firestone tire failure problem just last year.
When the Subcommittee on Oversight and Investigations of the
Committee on Energy and Commerce did the deep investigations of
Firestone and followed through in the current cycle of Congress,
through to a point where not only did Firestone itself begin to fix its
own problems, but it is reestablishing its name, it is beginning to
hire back its people, its products are beginning to find their way back
into the marketplace with confidence again; and it has now realized
that it cannot have a defective product out there.
It is doing much better today, I should report to the American
public; but we in Congress, after those very extensive hearings, those
awful hearings where we looked at so many people who had died on the
highway because of the failure of tires on the traveling roads of our
country, we in Congress acted swiftly. We amended for the first time in
30 years the highway safety laws of our country. NHTSA, our National
Highway Safety Administration, was empowered to gather much more
information about the safety of tires. It was empowered to do much
deeper testing. It was empowered to require the companies to build
better tires and to test them more efficiently and effectively.
It is now going through a rulemaking that is going to give all of us
a chance to know, in the new automobiles we buy, just what our tire
pressure looks like and whether or not we are losing tire pressure so
our tires become more dangerous again. The work the Subcommittee on
Oversight and Investigations of the Committee on Commerce produced is
now producing stronger regulations, legislation which mandated stronger
tires, safer automobiles; and therefore we are saving lives because of
what we did with that extensive investigation and the subsequent
legislation.
We are in the same position here, except the lives we are trying to
save are the financial lives of the citizens of our country; the
financial life of Wall Street, to try to restore its confidence again;
the financial life of corporations that are suffering.
I bleed today for the workers at Enron. I bleed for the good
accountants who worked for Arthur Andersen who have lost their jobs,
who have seen their company come under such disastrous publicity and
indictment and conviction for what occurred in the
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shredding. I bleed for the folks at WorldCom today, who are suffering
through layoffs because their corporate executives participated in an
apparent scheme to cook the books, and now their company is on the
verge of bankruptcy.
We should bleed for those workers, but we also bleed for the American
public who invested in those companies and who trusted them.
So what is the work product we have to come out with? We have to come
out with a work product that literally strengthens our regulations,
strengthens our laws, strengthens the enforcement agencies, but also
does something the President called upon, and that is reinstills in
corporate America, in those companies who may have lost their way, an
understanding that character counts and that truthtelling is important.
When they sign on the dotted line what the value of their company is,
it should be a true value.
It says to accountants, when they go and audit the books, they ought
to do a fair auditing. They ought not hide debt and inflate income, and
they ought to give people the truth about how well their corporation is
doing.
The good news is that most American corporations, the vast majority
of American corporations, are not experiencing these problems. They
have good boards and good managers, and the American public can have
faith in them. But for those who have violated the trust of the
American investors and the laws of our land, there are laws to punish
them today, without us passing a single new law. There is justice
coming, and there is reform in the wind.
Again, I think the Firestone story tells the truth about this
situation. When we shed light on the problem honestly, faithfully, get
all the facts on the table, put the witnesses in front of the American
public, let them tell their stories, when we do that, Congress acts,
the regulatory agencies act, and the American public responds.
Corporate America is waking up, I believe, to their responsibilities.
I believe they are going to learn out of this horrible experience how
important it is to keep, not just to build and to have, but to keep the
trust of the folks who put their money into those corporations; who
fund them, essentially, in their businesses through their investments
and their pensions and 401(k)s, and the daily buying and selling of
stock in our major markets.
Mr. Speaker, again I want to thank the gentleman for the great work
that the Subcommittee on Oversight and Investigations has done. The
Committee on Financial Services, led by the gentleman from Ohio (Mr.
Oxley), is doing a good job; and the combination of that and the work
the gentleman from Ohio (Mr. Boehner) is doing in the Committee on
Education and the Workforce on pension reform, I think that work
together with what the Senate will do on the Sarbanes bill and what may
happen yet on our FASB legislation and other bills that may make it
through in terms of strengthening the criminal penalties against bad
behavior.
All that work will complement, I hope, the good work that is going on
in corporate America now to clean up their act, and the good work that
is going on in the accounting field to make sure that aggressive
accounting is a thing of the past and that honest accounting is the way
of the future.
Mr. GREENWOOD. Mr. Speaker, I thank the gentleman from Louisiana (Mr.
Tauzin), the chairman, for joining us again on this Special Order.
Mr. Speaker, there has been a fear, a nervousness, that if we
continued these investigations, if we brought these corporate moguls
before our Subcommittee on Oversight and Investigations, that somehow
that would rock the markets and it would shake the confidence of the
investors and make things worse instead of better.
We thought long and hard about that in our subcommittee, but we
decided to continue on with our investigations and to continue to
pursue these matters because we cannot, we cannot get the reforms that
are required to protect the investor in this country until we lance the
boil. We have to pick the scab. We have to open the wound, look at it,
allow it to be seen by the American people, to show the American people
that the United States Congress understands that this cannot stand and
it will not stand, and that we will move to make reforms.
There are those who want to do too little. I think, frankly, some of
the most conservative Members of the Congress want to do too little.
They are afraid that these reforms are too much of an invasion into the
private sector. They are not.
The marketplace of this country that drives our economy, that
provides our wealth and provides our greatness, does not spring up like
Topsy. It is the result of the laws and the regulations that we impose
on the marketplace to keep it honest, to maintain its integrity so that
investors can make smart decisions, so money can move efficiently to
smart ideas and efficient companies and products, and make us wealthy
as a result.
There are those who would do too much. There are those who would
create a new Department of Auditing and make sure that every auditor in
every company was a Federal employee. That would be bureaucratic and
costly and invasive and wrong.
So we do have to find the middle way. We do have to find that which
separates the most liberal Members of Congress from the most
conservative Members of Congress, and I think we are well on our way.
I think the legislation that we passed in this House in April, the
bill of the gentleman from Ohio (Mr. Oxley), was the middle way. I
think what Mr. Sarbanes did yesterday with 100 percent support in the
Senate represents the middle way. I think the President's bold remarks
of 2 days ago were right on and illustrated the things that the
executive branch particularly needs to do to bring us these reforms.
The only thing we need to worry about now is what we began this
Special Order with, and that is the fear of partisanship. If Members of
Congress and if political consultants and if leaders in political
parties decide that, rather than solve this problem, rather than do the
things that we need to do in a bipartisan fashion to restore confidence
in the marketplace, they want to exploit this issue, create fear among
the American people, try to cast false blame on particular individuals
in the Congress or in the White House or elsewhere, then we will fail.
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Then we will fail to meet our obligation to the American people and
solve this problem. When this Congress, the 107th Congress of this
country's history, concludes its work at the end of this year, I think
two things must occur. We must be able, as we wish each other well for
the holidays, clap each other on the back and say I think, number one,
we have done everything we could in a bipartisan fashion to win the war
on terrorism and provide security for America's people, and, secondly,
we must say, as we leave this body for our Christmas holidays, I think
that we have done everything we possibly could in bipartisan fashion to
restore the confidence in the marketplace that this country so relies
upon, that we did that in bipartisan fashion and that we can feel good
about beginning a new year with growth in the economy and with security
for the American people, not only physical security but economic
security as well.
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