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Corporate America needs protection from itself

By DAVID SCHULTZ

FIRST Enron. Then Arthur Anderson, Xerox, Global Crossing, Tyco, WorldCom and now even Martha! Why suddenly is there a rash of fraudulent and unethical, if not illegal, behavior on Wall Street and among corporate chief executive officers? President Bush claims this is just a case of a few bad apples. Yet how many apples have to be bad before one concludes that the entire barrel is rotten? Is the problem facing corporate America simply a lack of morality among corporate leaders, or is corporate capitalism structurally flawed? As a professor who teaches professional ethics to graduate business students, I am asked these days if the crisis on Wall Street is a matter of personal ethics and morality. Could we not prevent the lying and cheating by simply providing better and more rigorous moral training in schools, or by imposing more criminal penalties as the president is calling for? Perhaps some of the problems facing corporate America these days are rooted in individual ethics and criminality. Greater attention to inculcating personal virtue wouldn't hurt any of us. No doubt soon there will be calls demanding that MBA programs beef up their ethics classes. Yet the fundamental problem facing corporate America is more than a lapse of virtue or criminal prosecution; it is a lack of corporate accountability and checks upon business behavior. Economist John Kenneth Galbraith once wrote of the importance of developing "countervailing power" to contain corporations. For Galbraith, corporations hold tremendous power in our society, including over workers, investment decisions, and what is produced and ultimately what is consumed. If corporations and their leaders are given unchecked power and not held accountable, they will abuse it. Galbraith saw government and unions providing the countervailing power to keep business in line. Countervailing power promotes accountability and good behavior in ways that ethical training and criminal penalties do not because it prevents abuses from happening. Criminal laws address the problem after the damage is done, while ethical training does not remove the temptations to do wrong. Over the last 25 or so years, the countervailing powers to limit business excesses -- government regulation, unions and genuine shareholder control -- have evaporated or been dismantled in light of the cult of CEOs. Driving much of this assault has been the ability of business leaders to donate hundreds of millions of dollars to elected officials, including Congress, the president and the major political parties. In return for the millions Enron gave to Bush and practically every member of Congress, or WorldCom in its contributions to Sen. Trent Lott, R-Miss., or his charities, the U.S. government dismantled the countervailing forces necessary to keep these businesses in check. The result? CEOs dominating businesses, appointing friends to rubberstamp boards and doctoring company books to fatten their wallets with stock options. Contemporary corporate America is devouring itself as yet another revelation of doctored earnings or audits continue to hammer away at investor confidence and business profits. At its root, capitalism is about the pursuit of self-interest. Left to its own device, self-interest morphs first into irrational exuberance and greed. Left unchecked, the competitive pressures of capitalism compel even the most ethical CEO into pursuing a strategy of seeking ever higher returns and profits, such that cutting corners -- even violating the law -- becomes an imperative if one is to succeed. The issue then is not simply one of individual ethics, but something more intrinsic to unregulated capitalism. Self-interest and untrammeled ambition must be checked for the markets to perform properly. Adam Smith recognized this more than 200 years ago, but the current crop of free-marketers, including Bush, have forgotten this. Laizzez fairests fail to recognize that the current consumer crisis on Wall Street will not go away without a fundamental restructuring of corporate America. New incentives must limit corporate abuses, restrict CEO aggrandizement and channel business behavior in a way that it does not feed upon itself. Wall Street and corporate America need protection from themselves. New countervailing powers are needed to open up and democratize corporate America so that they and their CEOs are accountable to the people they are supposed to serve. These reforms should include vigorous enforcement against interlocking directories; facilitating workers' rights, including requirements that at least one board member be selected by, and represent, the employees; effective bans on corporate political contributions; public disclosure of corporate tax filings; and a requirement that businesses have an ethics committee and a promulgated ethics code that allows shareholders to file derivative suits against officers who violate these codes. These reforms, along with a renewed emphasis upon the moral responsibilities that corporate leaders have to their shareholders, workers and the larger public, are a good first step toward restructuring Wall Street.

Schultz is a professor in the Graduate School of Public Administration and Management at Hamline University in St. Paul, Minn. He can be reached by e-mail at [email protected].

Copyright 2002 Houston Chronicle

Texas doctors, unions sue over workers' comp

AUSTIN -- Texas doctors and labor unions on Wednesday sued to stop new workers' compensation guidelines they say will ultimately harm health care for injured workers. The new guidelines are designed to cut the cost of workers' comp coverage, but the Texas Medical Association and the Texas AFL-CIO say they will actually drive doctors away from treating workplace injuries. The groups filed a lawsuit in state district court in Travis County to block the rules, which take effect Sept. 1. "This new fee schedule, if allowed to stand, will further force good doctors out of the system," said Dr. Fred Merian, president of the TMA, the state's largest physicians group with more than 37,000 members. The new rates would be based on reimbursement price controls for Medicare, the federal program for senior citizens and the disabled. The goal is to reduce the cost of workers' comp claims. Business groups praised the plan. They complain that current market-based guidelines overcompensate doctors for medicine and surgery compared to group health plans and Medicare. The Texas Association of Business said Texas employers pay 50 percent more per claim than the national average. The group warned that if rates don't change, employers will drop out of the workers' comp system. "The new guidelines will not diminish medical care for injured workers," said Richard Evans, TAB's vice president for governmental affairs. Labor and doctors, however, called them unfair. They also say tying state workers' comp rates to the federal Medicare program is illegal. Calls to the Texas Workers' Compensation Commission were not immediately returned Wednesday. Texas AFL-CIO President Joe D. Gunn accused the commission of favoring the insurance industry. "It seems they will not be happy until the last ones standing are the insurance companies and shortchanged working people," he said. Gov. Rick Perry also has criticized the new rules, saying he has "great concern" that doctors will abandon workers' comp care if they take effect.

Copyright 2002 Associated Press

Union says wage, safety laws broken

By JANETTE RODRIGUES

Union officials Friday accused the Harris County-Houston Sports Authority of turning a blind eye to wage, safety and possible child labor law violations at the downtown arena construction site. The Texas Carpenters & Millwrights Regional Council asked the Sports Authority to investigate all subcontractors working on the basketball arena and garage. Officials of the Sports Authority and Hunt Construction Group, the projects' managing firm, denied the wage and safety allegations and said they were unaware of reports that a 17-year-old boy had worked at the site. Union officials say the youth not only was assigned to do skilled labor but that he broke his leg on the job. The allegations follow reports that the number of minority subcontractors hired by Hunt Construction remains relatively low. Union officials said subcontractor Capform Inc., a Carrollton-based concrete construction company, is cheating workers out of money. "Capform is what we call a bad actor as far as worker rights," said Terry Darling Jr., the union's organizing director. "They have a long history of hurting workers on the job, even killing workers on the job unfortunately." Capform officials could not be reached for comment. Mike Fratianni, Hunt project manager, said he was unaware that anyone under 18 had worked on the job. But he confirmed that the only two on-the-job injuries at the arena site involved Capform employees. Fratianni said Capform has put in 200,000 of the 384,000 man hours at the arena. "By our standards," he said, "that is excellent and a very safe job." According to newspaper reports, the federal Occupational Safety and Health Administration fined Capform earlier this year after a worker was killed on a Dallas project. The company was cited for failing to train its employees on how to recognize and avoid workplace hazards. Billy Burge, Sports Authority chairman, said payroll records show that the companies working on the projects here are in compliance with the prevailing wage guidelines. Sports Authority officials acknowledged a discrepancy in overtime pay, but Fratianni said Hunt is unaware of any problems or discrepancies in what Capform is paying its employees. Union officials say the subcontractor hires workers from out of state and other countries who don't know wage laws. "Once we started educating workers about their pay, (Capform) made them sign contracts agreeing to work for a lesser wage," Darling said. "This type of contract is illegal and unethical." Fratianni believes the union has an ax to grind with Capform. "This is my fifth stadium or arena I have built, and Capform is the best concrete contractor I have had," he said. "Capform has done a really good job and I firmly believe the issues being raised by the union, and the intention of these issues, are independent of the project."

Copyright 2002 Houston Chronicle