[Weekly Compilation of Presidential Documents Volume 38, Number 28 (Monday, July 15, 2002)]
[Pages 1158-1162]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
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

[[Page 1159]]

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, 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

[[Page 1160]]

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 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 above-board. 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.
    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.

[[Page 1161]]

    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 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.

[[Page 1162]]

    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.