Court
Steps in Where Political Corruption Blocks Reform
by Mark Weisbrot
Dissident Voice
January 4, 2003
In a
little-noticed decision made just before the holidays, Judge Melinda F. Harmon
gave the country a Christmas present that we really needed but couldn't seem to
go out and get for ourselves. The 307-page opinion reinterpreted securities law
so that financial firms that help companies make fraudulent transactions -- of
the kind that brought down Enron -- can themselves be held liable for fraud.
It remains to be
seen whether this decision from the Federal District Court in Houston will
accomplish something that our Congress and the executive branch have failed to
do in the year since Enron's house of cards collapsed. But the decision is striking
in that it shows how we are becoming increasingly reliant on the courts to make
essential changes, sometimes in the face of staggering political corruption,
that our society needs in order to get on with its day-to-day business.
More than a year
after Enron's implosion, the three most basic reforms that were put forth when
the fraud was exposed have not been adopted. They are: first, a system to
assign auditors to companies so that the auditors' independence can be assured;
second, requiring firms to list stock options (given to executives as part of
their compensation) as a business expense at the time they are granted; and
third, a limit on the percentage of employees' individual retirement benefits
that can take the form of company stock.
When the wave of
corporate accounting and governance scandals first broke, these reforms were
widely seen as a reasonable first step toward restoring investors' trust and
protecting employees. Yet Congress did not address these issues in its “corporate
accountability” bill, which was largely an empty public relations gesture. The
SEC obstructed even the weak provisions in this act, with its Chairman Harvey
Pitt eventually being forced to resign after appointing a person tied to an
accounting scandal to head the newly created accounting oversight board.
Judge Harmon's
decision is particularly noteworthy because it is trying to save big business
itself from the fraudulent excesses of one sector. This is a basic regulatory
function that would not ordinarily have to become the responsibility of the
judiciary. But our Congress and the executive branch have become so corrupted
by our system of legalized bribery -- political campaign contributions -- that
they cannot even enact positive reforms that are desired by most of the
business class.
The courts have
thus become the last branch of our government where there remains enough
integrity to confront powerful special interests, at least in certain
circumstances. In the two months since our last national election, the
corruption of the rest of our government has been breathtakingly highlighted by
paybacks to corporate and wealthy interests. Financial contributions to the
coffers of campaign 2002 have bought rights for logging companies to further
damage national forests, electric utilities to increase their pollution, and
pharmaceutical companies to ensure that any Medicare prescription drug benefit
-- if they can't block it altogether -- will keep U.S. drug prices the highest
in the world.
In recent years,
the courts have sometimes been a venue for change through class action lawsuits
such as those that forced Big Tobacco to stop marketing their cigarettes to
children, and held them liable for some of their damage to public health. Hence the corporate-funded campaign for
"tort reform," which seeks to curtail the ability of citizens to seek
legal redress for the victims of unsafe products and dangerous corporate
practices. People for whom greed is a guiding ethos ironically blame "greedy
trial lawyers" for raising the cost of everything from medical care to car
insurance through litigation. But this litigation is often the only means to
protect society from medical malpractice or corporate malfeasance.
The corruption
of most of our government by moneyed interests carries great social and
economic costs. Millions of people have lost the bulk of their retirement
savings due to corporate fraud over the last few years. And as the economy
heads toward a likely recession, the Bush Administration offers yet another tax
cut for the country's wealthiest households, rather than trying to counteract
the economic downturn.
As much as the
courts may occasionally intervene to regulate commerce or protect the rights of
citizens, they cannot substitute for the functioning democracy that this
country sorely needs.
Mark Weisbrot is Co-Director of the Center for Economic
and Policy Research (www.cepr.net), a nonpartisan think-tank in the nation's capital. Readers
may write him at CEPR, 1621 Connecticut Ave NW, Suite 500, Washington, DC
20009-1052 and e-mail him at Weisbrot@cepr.net