Vol. VII, Bulletin No. 5.                                                                           May 3,  2002 

Business Week: The Very Integrity of American Capitalism Is at Risk

How Corporate Abuses Erode Public Trust

"A nation's well being, as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in society." -- Francis Fukuyama in "Trust: the Social Virtues and the Creation of Prosperity" (Free Press, 1995).
Business Week is sounding a loud alarm that the erosion of trust in big business is widespread and is causing a major crisis for American capitalism. The May 6 cover story and an accompanying editorial warn corporate executives to take that crisis seriously and to support major reforms.

Not only the officers of Enron, and their enablers in the accounting and legal professions, but others in the corporate world have "committed egregious breaches of trust by cooking the books, shading the truth, and enriching themselves with huge stock-option profits while shareholders suffered breathtaking losses," Business Week writes, adding: "A certain moral laxity has come to pervade even the bluest of the blue chips."

Middle Class Seen as Key Source of Outrage and Demands for Reform

"Faith in Corporate America hasn't been so strained since the early 1900s, when the public's furor over the monopoly powers of big business led to years of trustbusting by Theodore Roosevelt," the magazine says. The source of today's "populist groundswell against big business" is coming not from the left but from "the prosperous, educated, suburban middle class that lives in the political center." That big and influential part of the U.S. population is embittered because it has been "deceived by insiders who hid the truth, rigged the odds, and enriched themselves," Business Week warns, and adds:

"Unchecked, that rising bitterness and distrust could prove costly to business and society. At risk is the very integrity of American capitalism. If investors continue to lose faith in corporations, they could choke off access to capital, the fuel that has powered America's record of innovation and leadership. The loss of trust threatens our ability to create new jobs and reignite the economy."
In its editorial Business Week expresses optimism that the "popular revolt of the investor class" will have positive results: "A new era of reform is dawning for Corporate America...to restore core American values of fairness, equity, and responsibility to the practice of big business in the U.S. Because the reform impulse is coming from the center and the right, generally sympathetic to business, the demand for change is all the more potent. It cannot be ignored."

Although the magazine lists many examples of "greed, lax oversight, and fraud," it concentrates on "How to Fix Corporate Governance," which is the title of its seven-page special report. "The breakdown has been so systemic and far-reaching that it will require major reforms in a number of critical areas," the report states. It spells out recommendations for reform in six areas, including top corporate leadership (both "directors who fail to direct and CEOs who fail at moral leadership").

Exorbitant CEO Compensation Called 'Mad-Cow Disease'

The chairman of Canada's Center for Corporate & Public Governance, J. Richard Finlay, is quoted: "Excessive CEO pay is the mad-cow disease of American board rooms. It moves from company to company, rendering directors incapable of applying common sense." Business Week agrees: "Restoring fairness to executive pay is critical." It puts overhauling executive compensation at the head of its list of needed reforms. The report's explanation, in part:

"Management guru Peter F. Drucker has long warned that the growing pay gap between CEOs and workers could threaten the very credibility of leadership. He argued in the mid-1980s that no leader should earn more than 20 times the company's lowest-paid employee. His reasoning: if the CEO took too large a share of the rewards, it would make a mockery of the contributions of all the other employees in a successful organization.

"After massive increases in compensation, Drucker's suggested standard looks quaint. CEOs of large corporations last year made 411 times as much as the average factory worker. In the past decade, as rank-and-file wages increased 36%, CEO pay climbed 340%, to $11 million. 'It's just way off the charts,' says Jennifer Ladd, a shareholder who is fighting for lower executive pay at companies in her portfolio. 'A certain amount of wealth is ridiculous after a while.'...

"When CEOs can clear $1 billion during their tenures, executive pay is clearly too high."

Some Other Ways that Corporations Destroy Trust

Not mentioned by Business Week are these types of trust-destroying practices by corporate managements:

Asking Sears about Made-in-China Goods

On April 3 I mailed the following letter to the consumer affairs office at Sears, Roebuck and Co. headquarters in Hoffman Estates, Illinois.

Dear Sears, Roebuck:

Imagine my new Microwave Hood Combination made in the People's Republic of China!  I discovered that disturbing fact when, a few days after this Kenmore product was installed, I peered at the label inside the door and discovered where it was manufactured.  Actually, the label said it was "made in PRC," an abbreviation suggesting shyness about divulging the country of origin.

One reason I avoid buying a product from China is that I don't know whether it was made in one of China's many prison factories. I wonder whether you know.  And, further, I don't know whether the prisoners who made it were priests, nuns, or other political prisoners. I wonder whether you know.

More generally, please tell me whether Sears, following the example of Reebok and some other multinationals, has a code of labor conduct covering your factories and suppliers in China. If so, please send me a copy.  I wonder whether it forbids the use of priests, nuns, and other political prisoners in making your products, and whether you have a reliable system of monitoring compliance.

 I would appreciate an early response.               Thank you, Robert A. Senser

To date I have received no response.

It troubles me when I unknowingly buy a product made in China, or when, as a last resort, I knowingly buy one because I think I have no other choice. I don't have a hang-up about feeling guilty about it. A letter such as the one above assuages my guilt. If enough of us were to do likewise, we might have a healthy effect on corporate policies. Or am I dreaming? 

Widening the World Bank's Horizons

Working together as a coalition, 26 American non-governmental organizations are exerting reform pressures on the World Bank at an opportune time. The World Bank is in need of more funds this year, and Congress will need to approve the contribution of the United States, the top donor.

In a document titled "Responsible Reform of the World Bank," the coalition declared last month: "Congress should ensure that the hundreds of millions of taxpayer dollars that are provided to the World Bank this year do not fund more failure at the institution."  The document, prepared for Congress and the U.S. Treasury, which is the chief executive department in dealing with the Bank, is subtitled "The Role of the United States in Improving the Development Effectiveness of World Bank Operations." Among its set of proposals:

The full text of the reform proposals is available from the Bank Information Center, a member of the coalition. Other members include the AFL-CIO, the American Public Health Assn., the Catholic Relief Services, the Communications Workers of America, the Episcopal Church USA, Friends of the Earth, Oxfam America, and Public Citizen.

Safety Net for Unemployed Has Big Holes

Only a minority of unemployed workers in the United States receive unemployment insurance benefits. Last year only 46% of unemployed men and 40% of unemployed women were able to get jobless checks. That's because this safety net for workers who lose their jobs is full of holes that badly need repair.

A new report, "Failing the Unemployed," details the weaknesses of the system on a state-by-state basis, since states have near complete discretion for determining who qualifies for unemployment checks and how large their checks are. Narrowly drawn eligibility requirements comprise the system's most serious shortcoming. In this respect, the District of Columbia and every state except Rhode Island and Vermont all get a "failing grade," partly because they exclude low-wage and part-time workers, the people most in need of a safety net. Thirteen states and the District set down so many restrictions that two-thirds or more of unemployed workers do not qualify for benefits.

In the first half of 2002 more than two million unemployed workers are likely to run out of benefits before finding new employment, the report's six authors estimate.  The report is a joint project of three research institutes, the Economic Policy Institute, the Center on Budget and Policy Priorities, and the National Employment Law Project.

Diary: Letting Go, And Not Letting Go

I was so full of energy and ideas a year ago that I propelled a second Website into cyberspace. I called it Globalizing Solidarity, and registered it under the corresponding domain name of  www.globalizingsolidarity.org. On its home page, I introduced its theme as "A Global Challenge To All," inspired by a Jubilee Year message of Pope John Paul II that "Solidarity too must be globalized." And so this initiative, I wrote, aims to make a "modest contribution by...[for example]:

What plans I had then!  Eighteen days in Reston Hospital for colon surgery (see Whatever Happened to August?) punctured my enthusiasms somewhat. Most of all, I found I had enough to do publishing one Website (this one) and writing an occasional magazine article. But, still dreaming, still unwilling to let go, I kept globalizingsolidarity.org alive by continuing to pay Earthlink to host it, even though I posted very little on it. At long last, I canceled the Earthlink account last month. Back on May 7, 2001, I registered it for two years, instead of just one, and so globalizingsolidarity.org lives on, in the abstract as a domain name but not in reality.

Still, if you browse through a few issues Human Rights for Workers, you'll recognize that the goal of globalizing solidarity is part of its agenda. That explains why you find articles here on the activities of trade and investment institutions (such as the World Trade Organization) and on international financial institutions (such as the World Bank). They have a huge impact on the lives not just of workers in the narrow sense but farmers, civil servants, doctors, and all the rest of us. Except in times of great crisis, the mass media ignores such intergovernmental organizations. Fortunately, nowadays many Websites monitor and critique these powerful agencies, and in drawing on them for information and insights, I also provide links so you can check their reports in full.

What a Blessing We Had Him By Our Side!

The last time I saw Monsignor George Higgins was on January 12 this year at a memorial Mass in Washington for a friend of mine, Mathew Ahmann, a pioneer leader of the civil rights movement. Father Higgins didn't look good. He had such difficulty walking that he could easily have excused himself. But he was there, both at the Mass and at the reception afterward.

On May 1, the Feast of St. Joseph the Worker, Father Higgins, 86, died at the home of his sister near Chicago. There's much to be written about him and his wondrous work. For the moment, I'll only quote from a tribute to him just issued by the AFL-CIO:

"For decades, Msgr. Higgins kept a promise he made long ago never to turn down an invitation to offer a prayer at a trade union gathering.  The women and men of the union movement saw him keep that commitment at more rallies and organizing campaigns than anyone could count....Three generations of workers have been very lucky to have him by our side."
Those words are from "Monsignor George Higgins: An Appreciation."  Read the full text on the AFL-CIO Website at http://www.afl-cio.org/news/2002/0501_higgins.htm. You'll also find there a biographical sketch and a link to the Higgins archives at the Catholic University of America.

Human Rights for Workers: Bulletin No. VII-5, May 3, 2002
Robert A. Senser, editor
Copyright 2002
robert@senser.com. (Send e-mail)

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