[Congressional Record (Bound Edition), Volume 148 (2002), Part 12]
[Extensions of Remarks]
[Pages 16251-16252]
[From the U.S. Government Publishing Office, www.gpo.gov]




     ANDREW S. GROVE URGES RESPONSIBLE CORPORATE REFORMS BUT AVOID 
                         STIGMATIZING BUSINESS

                                 ______
                                 

                            HON. TOM LANTOS

                             of california

                    in the house of representatives

                      Wednesday, September 4, 2002

  Mr. LANTOS. Mr. Speaker, during the past few months our nation has 
watched in shock and dismay as a growing number of corporations have 
fallen into disrepute and many have been thrown into bankruptcy because 
of corporate financial fraud or unethical practices. The scandal has 
rightfully provoked public outrage, and Congress has taken up new 
legislation to stem the further erosion of public trust in our capital 
markets. As Members of Congress prepare to enter into negotiations over 
a conference report on corporate governance and accounting reform 
legislation, I call to the attention of my colleagues a particularly 
insightful article by Andrew Grove, Chairman of Intel Corporation.
  Mr. Grove--a former Time Magazine ``Man of the Year''--grew up in 
communist Hungary, where he experienced stigmatization and prejudice as 
the son of a businessman. After completing his Ph.D. at the University 
of California, Berkeley, Mr. Grove joined the Research and Development 
Laboratory of Fairchild Semiconductor. In 1968 he became one of the 
founders of Intel Corporation. Since then he has continued to play a 
key role in the growth and success of the company, serving as President 
and CEO and today as Chairman of the Board.
  In an article published in the Washington Post (July 17, 2002) 
entitled ``Stigmatizing Businesses,'' Mr. Grove points out that the 
current rush to judge and condemn all corporate executives without 
discrimination in our country has made him feel like he was back in 
communist Hungary, where businessmen were distrusted and stigmatized.
  Mr. Speaker, I urge my colleagues--and all Americans--to give heed to 
Mr. Grove's thoughtful insight. We must understand that while there has 
been corruption among far too many companies, this does not justify the 
vilification of the entire private sector or of every business 
executive. As Mr. Grove indicates in his article, the best way to 
tackle this issue is through corporate reform and ensuring a separation 
of powers between the chairmen, the board of directors, the CEO, the 
CFO, and accountants, and all street analysts. Once these positions are 
free to operate without constraint--and are not occupied by the same 
person--corporations will be able to monitor themselves much more 
effectively and can hopefully prevent future scenarios similar to the 
one our country is currently facing.
  Mr. Speaker, it is important that in our rush to repair the serious 
flaws in our system of corporate governance, that we not create other 
problems that could be equally damaging to our national economy. I ask 
that Mr. Grove's article be placed in the RECORD and I urge all of my 
colleagues to give attention to his thoughtful views.

                        Stigmatizing Business---

                           (By Andrew Grove)

       I grew up in Communist Hungary. Even though I graduated 
     from high school with excellent grades, I had no chance of 
     being admitted to college because I was labeled a ``class 
     alien.'' What earned me this classification was the mere fact 
     that my father had been a businessman. It's hard to describe 
     the feelings of an 18-year-old as he grasps the nature of a 
     social stigma directed at him. But never did I think that, 
     nearly 50 years later and in a different country, I would 
     feel some of the same emotions and face a similar stigma.
       Over the past few weeks, in reaction to a series of 
     corporate scandals, the pendulum of public feeling has swung 
     from celebrating business executives as the architects of 
     economic growth to condemning them as a group of 
     untrustworthy, venal individuals. I have been with Intel 
     since its inception 34 years ago. During that time we have 
     become the world's largest chip manufacturer and have grown 
     to employ 50,000 workers in the United States, whose average 
     pay is around $70,000 a year. Thousands of our employees have 
     bought houses and put their children through college using 
     money from stock options. A thousand dollars invested in the 
     company when it went public in 1971 would be worth about $1 
     million today, so we have made many investors rich as well.
       I am proud of what our company has achieved. I should also 
     feel energized to deal with the challenges of today, since we 
     are in one of the deepest technology recessions ever. 
     Instead, I'm having a hard time keeping my mind on our 
     business. I feel hunted, suspect--a ``class alien'' again.
       I know I'm not alone in feeling this way. Other honest, 
     hard-working and capable business leaders feel similarly 
     demoralized by a political climate that has declared open 
     season on corporate executives and has let the faults, 
     however egregious, of a few taint the public perception of 
     all. This just at a time when their combined energy and 
     concentration are what's needed to reinvigorate our economy. 
     Moreover, I wonder if the reflexive reaction of focusing all 
     energies on punishing executives will address the problems 
     that have emerged over the past year.
       Today's situation reminds me of an equally serious attack 
     on American business, one that required an equally serious 
     response. In the 1980s American manufacturers in industries 
     ranging from automobiles to semiconductors to photocopiers 
     were threatened by a flood of high-quality Japanese goods 
     produced at lower cost. Competing with these products exposed 
     the inherent weakness in the quality of our own products. It 
     was a serious threat. At first, American manufacturers 
     responded by inspecting their products more rigorously, 
     putting ever-increasing pressure on their quality assurance 
     organizations. I know this firsthand because this is what we 
     did at Intel.
       Eventually, however, we and other manufacturers realized 
     that if the products were of inherently poor quality, no 
     amount of inspection would turn them into high-quality goods. 
     After much struggle--hand-wringing, finger-pointing, 
     rationalizing and attempts at damage control--we finally 
     concluded that the entire system of designing and 
     manufacturing goods, as well as monitoring the production 
     process, had to be changed. Quality could only be fixed by 
     addressing the entire cycle, from design to shipment to the 
     customer. This rebuilding from top to bottom led to the 
     resurgence of U.S. manufacturing.
       Corporate misdeeds, like poor quality, are a result of a 
     systemic problem, and a systemic problem requires a systemic 
     solution. I believe the solutions that are needed all fit 
     under the banner of ``separation of powers.''
       Let's start with the position of chairman of the board of 
     directors. I think it is universally agreed that the 
     principal function of the board is to supervise and, if need 
     be, replace the CEO. Yet, in most American corporations, the 
     board chairman is the CEO. This poses a built-in conflict. 
     Reform should start with separating these two functions. (At 
     various times in Intel's history we have combined the 
     functions, but no longer.) Furthermore, stock exchanges 
     should require that boards of directors be predominantly made 
     up of independent members having no financial relationship 
     with the company.

[[Page 16252]]

     Separation of the offices of chairman and CEO, and a board 
     with something like a two-thirds majority of independent 
     directors, should be a condition for listing on stock 
     exchanges.
       In addition, auditors should provide only one service: 
     auditing. Many auditing firms rely on auxiliary services to 
     make money, but if the major stock exchanges made auditing by 
     ``pure'' firms a condition for listing, auditing would go 
     from being a loss leader for these companies to a profitable 
     undertaking. Would this drive the cost of auditing up? Beyond 
     a doubt. That's a cost of reform.
       Taking the principle a step further, financial analysts 
     should be independent of the investment banks that do 
     business with corporations, a condition that could and should 
     be required and monitored by the Securities and Exchange 
     Commission.
       The point is this: The chairman, board of directors, CEO, 
     CFO, accountants and analysts could each stop a debacle from 
     developing. A systemic approach to ensuring the separation of 
     powers would put them in a position where they would be free 
     and motivated to take action.
       I am not against prosecuting individuals responsible for 
     financial chicanery and other bad behavior. In fact, this 
     must be done. But tarring and feathering CEOs and CFOs as a 
     class will not solve the underlying problem. Restructuring 
     and strengthening the entire system of checks and balances of 
     the institutions that make up and monitor the U.S. capital 
     markets would serve us far better.
       Reworking design, engineering and manufacturing processes 
     to meet the quality challenge from the Japanese in the 1980s 
     took five to 10 years. It was motivated by tremendous losses 
     in market share and employment. Similarly, the tremendous 
     loss of market value from the recent scandals provides a 
     strong motivation for reform. But let us not kid ourselves. 
     Effective reform will take years of painstaking 
     reconstruction.
       Our society faces huge problems. Many of our citizens have 
     no access to health care; some of our essential 
     infrastructure is deteriorating; the war on terror and our 
     domestic security require additional resources. Attacking 
     these problems requires a vital economy. Shouldn't we take 
     time to think through how we can address the very real 
     problems in our corporations without demonizing and 
     demoralizing the managers whose entrepreneurial energy is 
     needed to drive our economy?

     

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