Clicking on banner ads enables JWR to constantly improve
Jewish World Review Jan. 13, 2004 / 19 Teves, 5764

Mort Zuckerman

Mort Zuckerman
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Policing the corporate suites | Have we saved capitalism from the capitalists? In the glum years of the new millennium, one business scandal came hard on the heels of another. It wasn't just Enron and WorldCom. The supposedly "independent" auditors, directors, accountants, and stock market advisers and banks were all tarnished; the engine of the people's involvement, the mutual fund industry, was shown to be permeated by rip-off artists rigging the system for the benefit of insiders and the rich. To crown it all, the high temple of capitalism, the New York Stock Exchange, was polluted by cronyism and greed.

The remarkable thing is that even after all this, confidence in the system seems to have survived. With stocks and profits on the rise once again, we are now at the point of letting the bad memories of the new millennium slide into oblivion, momentary blips on the curve of satisfaction. That would be a mistake. The images of handcuffed executives doing the perp walk before the TV cameras must be retained on all our retinas —but especially on those of unhandcuffed CEOs smiling for the annual report.

Boondoggle. The leaders of the mutual fund industry, in particular, must appreciate how close they have come to undermining the system that is the investment vehicle for 95 million Americans. It was outrageous —perhaps the biggest outrage of them all —that half of America's 88 largest mutual funds have been allowing choice customers to jump in and out of funds at a cost to ordinary investors of some $5 billion a year. This is a betrayal of the very justification for the mutual fund industry —giving the average guy a chance to participate on equal terms.

The men and women at the top of American industry and finance make big money. Americans by and large don't begrudge enormous sums earned by anyone —by Tiger Woods, by Nicole Kidman, or by business stars like IBM's Lou Gerstner. Their performances are measurable. But the average pay of a chief executive in major U.S. companies no longer bears any relationship to performance. It has gone up from 42 times that of the average wage in 1982 to a staggering 411 times today —a multiple of nearly 10 times. Is the average boss really 10 times better than he was 20 years ago? And gilding the compensation lily are golden parachutes and severance pay. The average severance package for departing CEOs in major companies last year was about $16.5 million —paid even when there was a dramatic decline in corporate performance, making it look like a boondoggle and a reward for failure.

Donate to JWR

On top of that, there were all those stock options that raised conflicts of interest, like "pump and dump" plays by top executives, who did all they could to inflate share prices in the short term so they could exercise their options and sell quickly at enormous profit. So the public was made to stand by while Global Crossing's Gary Winnick took out $750 million before the company filed for bankruptcy and Enron's Kenneth Lay and Jeffrey Skilling sold off hundreds of millions of dollars' worth of shares before the company collapsed. Then there were the CEOs who simply used their companies as personal piggy banks. Tyco's Dennis Kozlowski was the hands-down winner for chutzpah there. He spent $2 million on a 40th-birthday party for his wife, charged half of it to his company, and bought a co-op apartment in New York for over $18 million, misrepresenting it as a personal purchase to the co-op board while secretly paying for it out of company funds.

Misconduct like this rightly falls under legal scrutiny and will, with luck, result in the appropriate legal penalties. The idea that there are two tracks on the economy, one for the rich and the other for the rest, is utterly corrosive to our system and must be abjured. But most of the blatant excesses in the area of compensation have been quite legal —and simply making them illegal is not the answer.

Government has no part in the private negotiation of contracts. We must not strangle the free-enterprise flexibilities that are the true strength of the American economy. But there is a wholly proper and necessary role for the directors (especially the independents), shareholders, the Conference Board and other public-interest groups, better business bureaus, chambers of commerce, and public opinion served by a vigilant media. While government goes after the wrongdoers, the rest of the business community must insist on and enforce a higher standard of ethics.

Rightly, ethics has moved to the top of the agenda in many major companies. Ethics officers, who enforce codes of ethics, are now prevalent in an increasing number of big companies. Fortunately, American business and American finance tend to fix problems quickly and even ruthlessly. We will all be watching.

Every weekday publishes what many in Washington and in the media consider "must reading." Sign up for the daily JWR update. It's free. Just click here.

JWR contributor Mort Zuckerman is editor-in-chief and publisher of U.S. News and World Report. Send your comments to him by clicking here.


11/25/03: Slowly but surely in Iraq
11/12/03: Holding their feet to the fire
10/29/03: Graffiti On History's Walls
09/04/03: All work and no play
08/29/03: Facing the other threat among us
07/23/03: Making odds on a recovery
07/15/03: A Kremlin conversation
06/10/03: Welcome to Sue City, U.S.A.
05/05/03: America's next critical test
04/22/03: The challenge of success
04/15/03: Shape up or step aside
04/08/03: The latest in reality TV is
04/02/03: Chirac and Saddam's thugs are two of a kind
03/26/03: War by new rules
03/05/03: The high price of waiting
02/14/03: Needed: fast fiscal action
02/03/03: Clear and compelling proof
01/24/03: Midnight for Baghdad
01/14/03: They should have said...
12/24/02: Who finances the fanatics?
12/19/02: Put-up or shut-up time
12/09/02: Sheep, wolves, and reality
11/21/02: Curing the uncommon cold
11/12/02: Everybody has the right to be wrong but the Dems have been abusing the privilege
11/05/02: Force vs. fanaticism
10/30/02: Land of the sinking sun
10/22/02: No more cat and mouse
10/15/02: And pigs will fly
10/07/02: A shameful contagion
09/26/02: Calling a madman's number
09/23/02: Our rainbow underclass
09/13/02: Why America must act
09/04/02: After bubbles, a double dip?
08/20/02: No time for equivocation
08/06/02: No time for politics
07/30/02: Getting off the dime
07/17/02: What scandal cannot dim
06/18/02: Time to crack down: Where is the outrage?
06/05/02: The next new thing
04/30/02: Roller-coaster nation
04/25/02: A critical tipping point
04/15/02: Israel's endgame will impact the free world
03/21/02: In the face of pure evil
03/14/02: A man on a mission
03/07/02: Land of the Sinking Sun
02/12/02: Speaking truth about energy
01/15/02: Putting our house in order
01/12/02: Talking points for 2002
12/24/01: The shape of things to come
12/11/01: Finally, a clarity of vision
12/04/01: Apocalypse now
11/26/01: The Big Apple's core
11/06/01: What it will take to win
10/22/01: Getting the mayor's message
10/08/01: A remedy for repair
10/01/01: A question of priorities
09/26/01: Our mission, our moment
09/11/01: Running the asylum
08/29/01: Hail, brave consumer
06/14/01: Blackouts --- or blackmail?
06/01/01: A time to reap --- and sow
05/25/01: A question of confidence
05/18/01: A question of confidence
05/04/01: Making the grade
04/26/01: The caribou conundrum
04/19/01: Chinese boomerang
03/27/01: The man of the moment
03/20/01: The Fed must be bold
03/15/01: Japan on the brink
03/01/01: Rethinking the next war
02/09/01: The education paradox
01/08/01: How the bottom fell out
01/03/01: Quipping in the new year
12/20/00: A time for healing
11/13/00: The need for legitimacy
10/30/00: Arafat's bloody cynicism
10/18/00: Arafat torches peace
10/03/00: A great step backward
09/08/00: The Perfect Storm
08/29/00: Don't blow the surplus
08/15/00: Voting for grown-ups
08/01/00: Arafat's lack of nerve
07/17/00: Can there be a new peace between old enemies? Or will new enemies regress to an old state of war?
07/11/00: A time to celebrate
06/19/00: A bit of straight talk
06/08/00: Using hate against Israel
05/26/00: Is the Federal Reserve trigger-happy?
04/18/00: Tensions on the 'Net
04/13/00: A paranoid power
03/10/00: Fuel prices in the red zone
02/25/00: Web wake-up call
02/18/00: Back to the future
01/21/00: Whistling while we work
01/11/00: Loose lips, fast quips
12/23/99: The times of our lives
12/14/99: Hey, big spender
11/18/99: Fountain of Youth
11/04/99: An impossible partner
10/14/99: A nation divided
10/05/99: India at center stage
09/21/99: Along with good cops, we need a better probation system
09/08/99: Though plundered and confused, Russia can solve its problems
08/31/99: The military should spend more on forces and less on facilities
08/05/99: Squandering the surplus
07/06/99: More than ever, America's unique promise is a reality
06/24/99: The time has come to hit the brakes on affirmative action
06/15/99: America should take pride in honoring its responsibilities
06/02/99: The Middle Kingdom shows its antagonistic side
05/11/99: Technology's transforming power is giving a lift to everything
05/04/99: The big game gets bigger
04/30/99: On Kosovo, Russia talked loudly and carried a small stick
04/21/99: No time to go wobbly
04/13/99: The Evil of two lessers

© 2001, Mortimer Zuckerman