[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

[[Page H4540]]

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.

                              {time}  1830

  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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