Personal Responsibility for the Corporate Elite

Before the corporate and political elite consign the “corporate accountability” proposal issued by President Bush last week to the dustbin, it is worth highlighting one element: the idea that CEOs sign and personally attest to the accuracy of the financial numbers their companies make public.

Here is what is important about this proposal: No one believes the CEOs are going to actually generate the numbers and track down each and every figure. Rather, the expectation is that making the CEOs personally responsible for the truthfulness of their statements will give them the needed incentive to put in place systems to ensure accuracy.

This is a radical concept.

Don’t worry. We haven’t lost perspective. We have zero expectation that the Bush administration is interested in applying the concept seriously.

Our point here is to emphasize the power of the concept.

One of the reasons corporations are so powerful is that they are entities structured in complex fashion to shield themselves and their top executives from responsibility for damage they may inflict on others. One of the perquisites of large size is that — absent an Enron-scale debacle — top management can always claim that “they didn’t know” about the misdeeds committed by the corporation, presumably ordered or overseen by a lower-level official.

The Bush proposal, taken seriously, cuts through the protective layering insulating top executives.

It puts the onus on the CEO, making it the CEO’s job to know. Under the Bush proposal, if a CEO attests to the validity of a grossly inaccurate financial statement, he or she would be required to return bonuses, and could be barred from serving as an officer or director of any publicly traded company.

There’s no reason this assignment of personal responsibility to CEOs should be limited to financial disclosures.

CEOs should be made personally responsible for ensuring their corporation complies with its specific legal duties, and particularly their obligation to comply with the law.

Leave aside, for now, the issue of corporate executives’ obligations to shareholders. Under the “business judgment” rule, executives are largely immune from liability to shareholders for any action undertaken in good faith. Underlying the business judgment rule is the notion that executives need discretion to use their best judgment to make corporate decisions, and that courts should not second-guess those decisions in hindsight. There are problems with the business judgment rule, but it is clear that executives do need some discretion when it comes to running a business.

But that discretion cannot include contravening statutory law and related regulations. Those rules circumscribe permissible corporate behavior. Corporations have a legal duty to respect occupational health and safety rules, environmental laws, workers’ labor rights, consumer regulations and criminal codes.

And just the way President Bush was right to propose tbat CEOs take personal responsibility for ensuring their corporations fulfill their legal duty to issue accurate financial statements, it makes sense to demand that corporations’ top officials — their chief executive officers — take personal responsibility for ensuring the companies comply with legal duties related to worker safety, worker rights, the environment, consumer protection and avoiding criminal wrongdoing.

The logic here is the same as in the Bush proposal. CEOs of large corporations cannot be expected to know the details of every action undertaken in the corporate name. But by being held personally responsible — with meaningful penalties in case of company noncompliance — they can be given the necessary incentive to put in place systems to ensure their company respects the law.

“America is ushering in a responsibility era,” President Bush said in issuing his corporate accountability proposal, “a culture regaining a sense of personal responsibility, where each of us understands we’re responsible for the decisions we make in life. And this new culture must include a renewed sense of corporate responsibility. If you lead a corporation, you have a responsibility to serve your shareholders, to be honest with your employees. You have a responsibility to obey the law and to tell the truth.”

Those are fine principles. Let’s give them teeth by holding CEOs personally responsible not just for their corporation’s financial statements, but for making sure their corporations comply with the law.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999)

(c) Russell Mokhiber and Robert Weissman