    [Public Papers of the Presidents of the United States: George W. Bush (2002, Book II)]
    [July 9, 2002]
    [Pages 1194-1198]
    [From the U.S. Government Publishing Office www.gpo.gov]

    [[Page 1194]]

    Remarks on Corporate Responsibility in New York City
    July 9, 2002

        Thank you all. Thank you very much for that warm welcome. I'm
    pleased to be back in New York City. New York City is a unique symbol of
    America's creativity and character and resilience. In the last 10
    months, New Yorkers have shown a watching world the true spirit of your
    city, a spirit that honors the loss, remembers its heroes, and goes
    forward with determination and with confidence. The people of this city
    are writing one of the greatest chapters in our Nation's history, and
    all Americans are proud of New York.
        I've come to the financial capital of the world to speak of a
    serious challenge to our financial markets and to the confidence on
    which they rest. The misdeeds now being uncovered in some quarters of
    corporate America are threatening the financial well-being of many
    workers and many investors. At this moment, America's greatest economic
    need is higher ethical standards, standards enforced by strict laws and
    upheld by responsible business leaders.
        The lure of heady profits of the late 1990s spawned abuses and
    excesses. With strict enforcement and higher ethical standards, we must
    usher in a new era of integrity in corporate America.
        I want to thank Bill for his
    introduction. There's nothing like being recycled. [Laughter] But thanks
    for having me, and I'm honored to meet your family and Uncle
    Jack. [Laughter]
        I appreciate very much Secretary O'Neill
    and Secretary Evans traveling with me today.
    I want to thank the members of the New York delegation, Senators
    Schumer and Clinton as well as Congressman Fossella and Congressman Rangel. I
    appreciate so very much the mayor--my friend the mayor for being here to
    greet me as I came in on the chopper. Thank you, Mr. Mayor, and thanks for the great job you're doing for New
    York.
        I'm honored that Cardinal Egan is
    here. And I appreciate so very much seeing John Whitehead, the chairman of the Lower Manhattan Development
    Corporation. And thank you all for coming as well.
        The American economy, our economy, is built on confidence--the
    conviction that our free enterprise system will continue to be the most
    powerful and most promising in the world. That confidence is well-
    placed. After all, American technology is the most advanced in the
    world. Our universities attract the talent of the world. Our workers and
    ranchers and farmers can compete with anybody in the world. Our society
    rewards hard work and honest ambition, bringing people to our shores
    from all around the world who share those values. The American economy
    is the most creative and enterprising and productive system ever
    devised.
        We can be confident because America is taking every necessary step
    to fight and win the war on terror. We are reorganizing the Federal
    Government to protect the homeland. We are hunting down the terrorists
    who seek to sow chaos. My commitment and the commitment of our
    Government is total. We will not relent until the coldblooded killers
    are found, disrupted, and defeated.
        We can be confident because of the amazing achievements of American
    workers and entrepreneurs. In spite of all that happened last year, from
    the economic slowdown to the terrorist attack, worker productivity has
    grown by 4.2 percent over the last four quarters. In the first quarter
    of 2002, the economy grew at an annual rate exceeding 6 percent. Though
    there's much work left to do, American workers have defied the
    pessimists and laid the foundation for a sustained recovery.
        We can be confident because we're pursuing pro-growth reforms in
    Washington,

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    DC. Last year we passed the biggest tax cut in a generation, which
    encouraged job creation and boosted consumer spending at just the right
    time. For the sake of long-term growth, I'm asking Congress to make the
    tax reductions permanent. I'm asking Congress to join me to promote free
    trade, which will open new markets and create better jobs and spur
    innovation. I ask Congress to work with me to pass a terrorism insurance
    bill, to give companies the security they need to expand and to build.
    And I will insist on--and if need be, enforce--discipline in Federal
    spending, so we can meet our national priorities without undermining our
    economy.
        We have much to be confident about in America. Yet our economy and
    our country need one more kind of confidence, confidence in the
    character and conduct of all of our business leaders.
        The American economy today is rising, while faith in the fundamental
    integrity of American business leaders is being undermined. Nearly every
    week brings better economic news and a discovery of fraud and scandal,
    problems long in the making but now coming to light. We've learned of
    some business leaders obstructing justice and misleading clients,
    falsifying records, business executives breaching the trust and abusing
    power. We've learned of CEOs earning tens of millions of dollars in
    bonuses just before their companies go bankrupt, leaving employees and
    retirees and investors to suffer. The business pages of American
    newspapers should not read like a scandal sheet.
        The vast majority of business men and women are honest. They do
    right by their employees and their shareholders. They do not cut ethical
    corners, and their work helps create an economy which is the envy of the
    world.
        Yet high-profile acts of deception have shaken people's trust. Too
    many corporations seem disconnected from the values of our country.
    These scandals have hurt the reputations of many good and honest
    companies. They have hurt the stock market. And worst of all, they are
    hurting millions of people who depend on the integrity of businesses for
    their livelihood and their retirement, for their peace of mind and their
    financial well-being.
        When abuses like this begin to surface in the corporate world, it is
    time to reaffirm the basic principles and rules that make capitalism
    work, truthful books and honest people and well-enforced laws against
    fraud and corruption. All investment is an act of faith, and faith is
    earned by integrity. In the long run, there's no capitalism without
    conscience; there is no wealth without character.
        And so again today I'm calling for a new ethic of personal
    responsibility in the business community, an ethic that will increase
    investor confidence, will make employees proud of their companies, and
    again regain the trust of the American people.
        Our Nation's most respected business leaders, including many
    gathered here today, take this ethic very seriously. The Business
    Roundtable, the New York Stock Exchange, the NASDAQ have all proposed
    guidelines to improve corporate conduct and transparency. These include
    requirements that independent directors compose the majority of the
    company's board, that all members of audit, nominating, and compensation
    committees be independent, and that all stock option plans be approved
    by the shareholders. I call on all the stock markets to adopt these
    sensible reforms, these commonsense reforms, as soon as possible.
        Self-regulation is important, but it's not enough. Government cannot
    remove risk from investment--I know that--or chance from the market. But
    Government can do more to promote transparency and ensure that risks are
    honest, and Government can ensure that those who breach the trust of the
    American people are punished.
        Bold, well-considered reforms should demand integrity without
    stifling innovation and economic growth. From the antitrust

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    laws of the 19th century to the S&L reforms of recent times, America has
    tackled financial problems when they appeared. The actions I'm proposing
    follow in this tradition and should be welcomed by every honest company
    in America.
        First, we will use the full weight of the law to expose and root out
    corruption. My administration will do everything in our power to end the
    days of cooking the books, shading the truth, and breaking our laws.
        Today, by Executive order, I create a new Corporate Fraud Task
    Force, headed by the Deputy Attorney General, which will target major accounting fraud and other
    criminal activity in corporate finance. The task force will function as
    a financial crimes SWAT team, overseeing the investigation of corporate
    abusers and bringing them to account.
        I'm also proposing tough new criminal penalties for corporate fraud.
    This legislation would double the maximum prison terms for those
    convicted of financial fraud from 5 to 10 years. Defrauding investors is
    a serious offense, and the punishment must be as serious as the crime. I
    ask Congress to strengthen the ability of SEC investigators to
    temporarily freeze improper payments to corporate executives and to
    strengthen laws that prevent the destruction of corporate documents in
    order to hide crimes.
        Second, we're moving corporate accounting out of the shadows, so the
    investing public will have a true and fair and timely picture of assets
    and liabilities and income of publicly traded companies. Greater
    transparency will expose bad companies and, just as importantly, protect
    the reputations of the good ones.
        To expose corporate corruption, I asked Congress 4 months ago for
    funding to place 100 new enforcement personnel in the SEC. And I call on
    Congress to act quickly on this request. Today I announce my
    administration is asking Congress for an additional $100 million in the
    coming year to give the SEC the officers and the technology it needs to
    enforce the law. If more scandals are hiding in corporate America, we
    must find and expose them now, so we can begin rebuilding the confidence
    of our people and the momentum of our markets.
        I've also proposed a 10-point accountability plan for American
    business, designed to provide better information to shareholders, set
    clear responsibility for corporate officers, and develop a stronger,
    more independent auditing system. This plan is ensuring that the SEC
    takes aggressive and affirmative action.
        Corporate officers who benefit from false accounting statements
    should forfeit all money gained by their fraud. An executive whose
    compensation is tied to his company's performance makes more money when
    his company does well. That's fine, and that's fair when the accounting
    is aboveboard. Yet when a company uses deception, deception accounting
    to hide reality, executives should lose all their compensation--all
    their compensation gained by the deceit.
        Corporate leaders who violate the public trust should never be given
    that trust again. The SEC should be able to punish corporate leaders who
    are convicted of abusing their powers by banning them from ever serving
    again as officers or directors of a publicly held corporation. If an
    executive is guilty of outright fraud, resignation is not enough. Only a
    ban on serving at the top of another company will protect other
    shareholders and employees.
        My accountability plan also requires CEOs to personally vouch for
    their firms' annual financial statements. Currently, a CEO signs a
    nominal certificate and does so merely on behalf of the company. In the
    future, the signature of the CEO should also be his or her personal
    certification of the veracity and fairness of the financial disclosures.
    When you sign a statement, you're pledging your word, and you should
    stand behind it.

    [[Page 1197]]

        And because the shareholders of America need confidence in financial
    disclosures right away, the SEC has ordered the leaders of nearly 1,000
    large public companies to certify that the financial information they
    submitted in the last year was fair and it was accurate.
        I've also called on the SEC to adopt new rules to ensure that
    auditors will be independent and not compromised by conflicts of
    interest.
        The House of Representatives has passed needed legislation to
    encourage transparency and accountability in American businesses. The
    Senate also needs to act quickly and responsibly, so I can sign a good
    bill into law.
        Third, my administration will guard the interests of small investor
    and pension holders. More than 80 million Americans own stock, and many
    of them are new to the market. Buying stock gives them an opportunity to
    build wealth over the long term, and this is the very kind of
    responsible investment we must promote in America. To encourage stock
    ownership, we must make sure that analysts give honest advice and
    pension plans treat workers fairly.
        Stock analysts should be trusted advisers, not salesmen with a
    hidden agenda. We must prevent analysts from touting weak companies
    because they happen to be clients of their own firm for underwriting or
    merger advice. This is a flat-out conflict of interest, and we'll
    aggressively enforce new SEC rules against this practice, rules which
    take effect today.
        And the stock markets should make sure that the advice analysts give
    and the terms they use have real meaning to investors. ``Buy'' should
    not be the only word in an analyst's vocabulary, and they should never
    say ``hold'' when they really mean ``sell.''
        Small investors should also not have to have the deck stacked
    against them when it comes to managing their own retirement funds. My
    pension reform proposal would treat corporate executives the same as
    workers during so-called blackout periods, when employees are prohibited
    from trading in their own accounts. What's fair for the workers is fair
    for the bosses.
        My reform proposal gives workers quarterly information about their
    investments. It expands workers' access to sound investment advice and
    allows them to diversify out of company stock.
        The House has passed these measures. I urge the Senate to do the
    same. Tougher laws and stricter requirements will help; it'll help.
        Yet ultimately, the ethics of American business depend on the
    conscience of America's business leaders. We need men and women of
    character, who know the difference between ambition and destructive
    greed, between justified risk and irresponsibility, between enterprise
    and fraud.
        Our schools of business must be principled teachers of right and
    wrong and not surrender to moral confusion and relativism. Our leaders
    of business must set high and clear expectations of conduct,
    demonstrated by their own conduct. Responsible business leaders do not
    jump ship during hard times. Responsible leaders do not collect huge
    bonus packages when the value of their company dramatically declines.
    Responsible leaders do not take home tens of millions of dollars in
    compensation as their companies prepare to file for bankruptcy,
    devastating the holdings of their investors.
        Everyone in a company should live up to high standards, but the
    burden of leadership rightly belongs to the chief executive officer.
    CEOs set the ethical direction for their companies. They set a moral
    tone by the decisions they make, the respect they show their employees,
    and their willingness to be held accountable for their actions. They set
    a moral tone by showing their disapproval of other executives who bring
    discredit to the business world.
        And one of the principal ways that CEOs set an ethical tone is
    through their compensation. The pay package sends a clear

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    signal whether a business leader is committed to teamwork or personal
    enrichment. It tells you whether his principal goal is the creation of
    wealth for shareholders or the accumulation of wealth for himself.
        The SEC currently requires the annual disclosure of the CEO's
    compensation. But that information is often buried in long proxy
    statement--proxy statements--and seldom seen, seldom seen by
    shareholders. I challenge every CEO in America to describe in the
    company's annual report, prominently and in plain English, details of
    his or her compensation package, including salary and bonus and
    benefits. And the CEO, in that report, should also explain why his or
    her compensation package is in the best interest of the company he
    serves.
        Those who sit on corporate boards have responsibilities. I urge
    board members to check the quality of their company's financial
    statements, to ask tough questions about accounting methods, to demand
    that audit firms are not beholden to the CEO, and to make sure the
    compensation for senior executives squares with reality and common
    sense. And I challenge compensation committees to put an end to all
    company loans to corporate officers.
        Shareholders also need to make their voices heard. They should
    demand an attentive and active board of directors. They should demand
    truly independent directors. They should demand that compensation
    committees reward long-term success, not failure. Shareholders should
    demand accountability not just in bad times but especially in boom
    times, when accountability frequently breaks down. Shareholders are a
    company's most important constituency, and they should act like it.
        The 1990s was a decade of tremendous economic growth. As we're now
    learning, it was also a decade when the promise of rapid profits allowed
    the seeds of scandal to spring up. A lot of money was made, but too
    often standards were tossed aside. Yet the American system of enterprise
    has not failed us. Some dishonest individuals have failed our system.
    Now comes the urgent work of enforcement and reform, driven by a new
    ethic of responsibility.
        We will show that markets can be both dynamic and honest, that
    lasting wealth and prosperity are built on a foundation of integrity. By
    reasserting the best values of our country, we will reclaim the promise
    of our economy.
        Leaders in this room help give the free enterprise system an ethical
    compass, and the Nation respects you for that. We need that influence
    now more than ever. I want to thank you for helping to restore the
    people's trust in American business. I want to thank you for your love
    of the country. And I want to thank you for giving me the chance to come
    and address you today.
        May God bless you all.

    Note: The President spoke at 11:20 a.m. in the Regent Ballroom at the
    Regent Wall Street Hotel. In his remarks, he referred to William Rudin,
    chairman, Association for a Better New York; Mayor Michael Bloomberg of
    New York City; and Edward Cardinal Egan, Roman Catholic Archdiocese of
    New York. The Office of the Press Secretary also released a Spanish
    language transcript of these remarks. The Executive order establishing
    the Corporate Fraud Task Force is listed in Appendix D at the end of
    this volume.