Does capitalism understand it any better now? The cultivation of bad business ethics is a poison pill, a destroyer of fortunes. Indian country can offer America some perspective on the culture of ethics that would restore trust to the stock market and corporate governance. But only if we can find leaders who know that our national business needs to go far beyond the mere reform of iniquities in the boardroom and the accounting house. This would mean, at a minimum, leaders who are not themselves the products of a corrupt business class.
With the cost of winning a seat in Congress quadrupling over the last two decades, we can see why the richest one percent of Americans making up 40 percent of the individual campaign donations over $200 are buying policy and political leadership. It only gets worse. The finance, insurance and real estate sector of the economy overtook manufacturing, pulling ahead in the GDP and national income charts in 1995. By 2000, this sector also moved out front in profits. It is no coincidence that it became the biggest federal election donor and the biggest spender on Washington lobbying.
Let's be clear. What has been called "WorldCon," the exposure of one major corporation after another as a criminal prankster in presenting false valuations of worth to the public so as to separate investors from their money, is not about reforming a few instances of ugly behavior. Securities fraud simply cannot be accomplished to the extent we have all witnessed were it not institutionalized. Anyone who still doubts this must not have heard that in the five years before WorldCon became front-page news, almost 1,000 U.S. firms admitted to misstating their accounts.
It is not about devising stricter punishments for wrongdoings so complex that jurors will seldom understand them well enough to convict. It is not about tighter regulation of an economic system that encourages unchecked greed to operate beyond any ordinary realm of regulation. It is not about the real economy, which is quite healthy despite the purgatory on Wall Street. And it is not about minimizing the misdeeds simply because we seem to be surviving them. American households and businesses have been robbed of wealth across the board, retirement accounts have been drained, and tens of thousands of employees have lost their jobs unjustly. It is also not about financial literacy. No amount of financial literacy would have explained Enron's castles-in-the-air-accounting before it all fell apart so publicly. And who would have believed it anyway?
WorldCon is about the bad business ethics of greed and dishonesty, or rather a degree of greed that has led our business class to forget what honesty means. The result is that American capitalism, an unprecedented engine of economic growth and individual wealth, has betrayed the trust of its investors and of its employees. Many, after lifetimes of contribution, have seen their retirement savings dwindle or disappear through fraudulent accounting and insider trading.
In fact, we now know that much of the U.S. wealth advertised to the world in recent years was a con job perpetrated by our most trusted legislators, auditors and executives. None of them were about to do their duty and report or discourage business misdeeds because they were also cashing in. Our president has been tarnished, our vice-president may yet be condemned in open court or a closed regulatory forum, and many of our legislators have been openly bribed with "contributions." Just as bad, they all have complex reasons for why it was all right after all. For shame, for shame.
Enron Corp., the accounting firm Arthur Andersen, Xerox, Global Crossing Ltd., MicroStrategy, Qwest Communications International, Adelphia Communications, ImClone, Martha Stewart, WorldCom, Halliburton, Harken Energy Corp., Cisco Systems, Seibel Systems ? WorldCon has implicated each of these one-time titans of commerce in some way. In many cases, executives with direct knowledge of a company's financial situation have made a clean escape with millions of dollars in their travel bags, while employees who helped build the company were left with as little as a trip to the unemployment office.
Enron, for instance, which had laid off thousands of workers and drained their pensions by the time it went bankrupt in December 2001, had in that same year paid a handful of top executives $320 million in bonuses for fiscal year 2000. This occurred even though the company's net income was reported as $975 million. What was the stated reason for giving 65 executives almost one-third of the total earnings in a company in which thousands of employees contributing to its value? They were credited with having met stock performance objectives, a valuation we now know to have been mostly smoke and mirrors, and yet it was the only way to keep Enron's particular con game going.
At bankrupt Global Crossing, the chief executive cashed in $730 million in shares before the bottom fell out. A Qwest executive, whose former company still limps along despite a credit rating at the bottom of the junk bond barrel and through a federal criminal investigation, cashed in more than $300 million in company shares before resigning, including $130 million at more or less the last minute. This was for one man among 57,000 employees.
This column would virtually never end if we even began to go into detail, but at least one example of WorldCon's finest must be cited. We've all heard that "there is no free lunch." It used to be a mantra of economics, business and even child rearing. But in 1994, as a way of linking executive pay with corporate performance, and not without a well-placed "contribution" or two from business interests, the U.S. Senate exerted pressure on the accounting profession to cease recording stock options as expenses. Once that change was approved, stock options became the best free lunch program ever devised, with one catch: it was served up primarily in the executive lunchroom. Only executives were given the option of buying stocks at their trading price on the day of issue. By dedicating themselves to driving up the short-term price of these stocks, executives could cash in on the difference between the day-of-issue price and a price that would be much higher once they had managed to goose the market or cook the books.
As for the companies that offered the stock options, they were as happy as the stock was high ? for reasons that conceal yet another swamp of deceit. Besides not having to count the options as expenses, they got a tax break out of them. Only to shareholders was this free banquet not free. In the long run in fact, it cost them everything. The higher price of the stocks did not reflect true value because it relied on publicity gimmicks, personality cults and big plans with a short life span, rather than on productivity over the long haul. And much of what was counted as profit on paper was actually a form of salary compensation owed by the company to stock-optioning executives. But how could you know any of that with blue-chip accounting firms, not about to risk their astronomical consulting fees from these same companies, signing off on the company audit?
Knowing only this much, we can begin to see why so many tricks of the trade were devised to bolster the public valuation of stocks, and why many of our so-called corporate leaders, from the President on down, simply blink like cattle. They say they can't figure it out and declare they've done no wrong even when confronted with the most obvious evidence of their crimes. The system they are a part of makes it hard to remember, or perhaps at a certain point impossible even to sense, what honesty means.
The rest of us know fraud when we see it. We'll be seeing a great deal more of it before long. Many other companies have indulged in securities fraud of one kind or another, all so as to keep their stock prices flying high. And many more individuals have engaged in insider trading ? the practice of profiting from privileged information that is unavailable to every other investor.
The collateral damage alone is going to be merciless. The stock market is punishing the innocent ? Electronic Data Systems, for instance, by every appearance a well-run company with a long track record and some integrity to speak of, saw $9 billion in shareholder value vanish in a single week due to its contracts with WorldCom. The real economy, though seemingly healthy enough, may also take a hit as tens of thousands of employees are laid off from no longer trustworthy firms, and from the honest dealers who did business with them. Economic development is sure to slow as investors continue an exodus from equity stocks whose valuations they can't trust. After all, at the end of the day, enterprise depends on equity investment.
As for the loss in wealth, it can't even be counted. Qwest alone, after the announcement of a federal criminal investigation had lopped one-third off the little remaining value of its shares, has now lost in excess of $100 billion in stock value since 2000. The telecommunications sector as a whole has eradicated a minimum of half the $880 billion invested in it since 1997, in the estimation of Thomson Financial in New York.
All of this happened 20 calendar years after the savings and loan crisis of the 1980s got its start, and follows exactly the same script. A business class at war with regulation, gains congressional acquiescence by corporate bribes for the favorable fine-tuning of operating rules wholly obscure to the general public, followed by high times for a select few at the expense of many, until another crisis pushes the pendulum back toward regulation. The only difference here is in the expense. By one estimate the savings and loan crisis cost taxpayers $100 billion and investors $600 billion. WorldCon has already cost that much and it is only getting started.
Better regulations are worth something, as are stronger penalties for corporate crooks. But on top of all that, the whole corrupt process of business practice, corporate governance and investment valuation must change. The system we need is one that takes its cue from those effective Native economic principles based on commonwealth, civic purpose and fairness. It is an approach dependent on the culture, not on individual Indians or leaders who are no better or worse than others. But within Native culture, respect for all beings, all the resources of nature, has led to an abiding respect for others ? a respect that proved itself with a staying power of many centuries' duration. Stock trading, by contrast, began with the raiding parties of pirate ships that sailed under flags of state. And corporations have an even briefer history.
The time has come for Native economic principles to enter and inform the core curricula of all business education and financial literacy training, the core organizational documents that govern corporations, and the core standards that guide investment valuation. Absent a commitment to abiding respect for others, we have only the word of pirates.
Rebecca Adamson is president of First Nations Development Institute and a columnist for Indian Country Today.