While American society rewards ambition and hard work, it also loves a scandal. The media coverage of Enron, Martha Stewart, and WorldCom has been as rampant as the hype over celebrity marriages and breakups and high-profile criminal cases. What is different about the recent financial scandals, however, is the very real and serious effect that corporate misconduct has on the lives of American employees and investors—the loss of jobs, retirement funds, and confidence in the integrity of the stock market and the nation’s economic system. In the Senate, we have the arduous task of trying to find a legislative solution to a difficult issue. The question of corporate accountability requires an answer that balances the imperative independence of the market with the financial security of all Americans. More important, it must protect Americans from the abuses of powerful executives who seek to enrich themselves through corporate fraud and malfeasance.
Debates in the Senate over this issue have focused on corporate responsibility. These debates demonstrate a strong desire among congressional members to stabilize the stock market and protect investors. However, by attempting to do so, Congress risks erring on the side of doing too much. While there is a legitimate role for the federal government in business oversight, especially when current laws are not working effectively, that role should recognize the significant differences in the wide range of public companies of various sizes and draw on the expertise and experience of all stakeholders.
As a member of the Senate Banking Committee, I support the idea of a Public Company Accounting Oversight Board that oversees the accounting industry. The accounting industry must be held accountable for any malfeasance. To ensure this, President George W. Bush has proposed a Corporate Fraud Task Force that is independent of political influence. This board will have the power to deter corporate fraud and punish financial misconduct.
Unfortunately, the public has lost confidence in the corporate management system; the trust of many Americans in the virtues of free-market capitalism has been undermined. We must ensure that corporations comply with existing regulations. The best way to prevent white-collar crime is to create a framework that promotes ethical behavior: discipline, clear guidelines, and a code of proper business conduct. The government encourages investment as a way to create wealth and ensure financial security for all Americans. However, this tool is useless if it does not come with a safeguard against the abuses by powerful corporate executives.
It is important that we keep in mind the goal of protecting our country’s small investors. But we must not get carried away with Big Government that interferes with the capitalist system by having a safeguard that is overly intrusive and burdensome. There are more than 16,000 publicly traded companies in the United States that range in size from small start-ups to giant firms. It would be impossible to apply regulatory laws fairly to both a ten-person firm and a corporate giant. We must not shut off the engine of economic growth by bogging down small companies with extensive accounting standards that only apply to large businesses. This would only accomplish further disservice to the investors and employees already suffering the economic blows of corporate dishonesty.
Ultimately, all institutions must be brought into alignment with the purpose for which they were created: the betterment of society. As Pope Leo XIII stated in Rerum Novarum in 1891, the perfection of associations depends on whether they are inspired by the same principles that brought society into being. If corporations turn away from their purpose of helping mankind and improving society, the long-term result will be an economy ravaged by corruption, greed, and loss of public confidence. No viable economic order can survive without the moral underpinnings of personal responsibility, honesty in business dealings, and Judeo-Christian values.
Michael Novak rightly argues that democratic capitalism taps into individual creativity and initiative and relies on self-interest—not to satisfy individual greed but to benefit others, the principal other being the family. Such a system not only produces wealth but also virtuous people whose worldly enterprise complements the work of the Creator. In attempting to keep companies aligned with their mission of improving society (and not simply maximizing profits), the laborer becomes trained in virtue. As Pope Leo XIII stated: “For when Christian morals are completely observed, they yield of themselves a certain measure of prosperity to material existence, because they win the favor of God, the source and fountain of all goods; because they restrain the twin plagues of life—excessive desire for wealth and thirst for pleasure—which too often make men wretched amidst the very abundance of riches.”
It is the role of Congress to make laws that fairly govern America’s citizens. And it is the duty of man to work ethically. Unfortunately, a few wrongdoers have tarred the reputation of the nation’s businessmen and women—most of whom are honest, hardworking, and law-abiding. In response to the recent wave of corporate corruption, the government must now impose tougher regulations to maintain the strength of the most vibrant and successful economy in the world. The virtue of America depends on it.