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Commentary | JOHN BALZAR

It's Quite Simple, Mr. Bush

There's nothing fuzzy or complicated about basic securities law.

July 14, 2002|JOHN BALZAR

We have the law and we have the intent of the law--and the two no longer seem to mean the same thing. So let's ask the question this way: When he served on the board of directors of a publicly held Texas oil company, was George W. Bush's conduct right?

Was his work, for which he was generously compensated, "fair"? To use the standards he voices now, was it "accurate"? Was it "principled"? "Without moral confusion and relativism"? Did it display "conscience" and "character"?

Or was it another example of a corporation "disconnected from the values of our country"?

The president says that dealings at Harken Energy Corp. were complicated when he was entrusted with oversight of the company. "Sometimes things aren't exactly black and white," he explains. Well, they should be. The law specifically calls for it. And if they aren't, a paid consultant, "corporate director" and member of the board's three-person audit committee should show his mettle by erring which way in his judgments?

Last January, in preparation for what was sure to be many months of scandal, I went back and read the founding laws that govern our free-market system, the 1933 Securities Act and the 1934 Securities Exchange Act. I also read the mission statement of the Securities and Exchange Commission, which was born of these statutes nearly 70 years ago.

These documents are worth revisiting now because they seek to make clear what Bush and so many others would have us believe is all fuzzy and too complex to be grasped by anyone who lacks an MBA.

Let's start with the SEC. Here's how the agency explains things: "The laws and rules that govern the securities industry in the United States derive from a simple and a straightforward concept: All investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it."

Can we agree that when Harken sells a chunk of its assets to a group controlled by the family of its own chairman for $1 million upfront and books the deal as a $7.9-million profit--thereby inflating its performance--the company is not providing basic information in simple and straightforward fashion?

If there is doubt, the 1934 act explains that public investors must be given "reasonable detail" about all of a company's business activities and "reasonable assurances" that management has supervised the accounting. What does that mean? The law spells it out this way: "The terms 'reasonable assurance' and 'reasonable detail' mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs." Rarely can we find a statute prefaced more forthrightly. A thousand loopholes may have been carved out of the law in the years since, but its intent remains crystal clear: It is supposed to safeguard the interests of investors and employees and society, not to serve as a shield for those at the top who rake in the cash.

Honorable people know, or should, what it means to manage a business as they would conduct their own affairs.

Audaciously, Bush asks us to believe that Harken's disreputable accounting is an example of a system that works. Why? Because the SEC ultimately caught the flimflam and made the company restate its books. In the dungeon darkness of contemporary corporate morality, we are told that since no one was actually charged with wrongdoing, then everything was legal and right, thank you.

The same with Bush's lapse in reporting his sale of his Harken holdings. In this, he failed to meet a legal deadline designed to protect investors against the abuses of insider trading. But regulators in his father's administration deemed it not worthy of filing a complaint.

The president now hopes to restore the nation's faith in corporations. He's counting on voters to believe in his sincerity.

But the men and women of the boardrooms may be drawn to a different conclusion.

When it comes to profits, stock gains, personal riches and "corporate responsibility," do they listen to the president's rhetoric about conscience and character or do they follow his example? Do they say to themselves, if the president can get away with it, why can't I?

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