THE WHITE HOUSE

Office of the Press Secretary

(New York, New York)
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For Immediate Release July 9, 2002

REMARKS BY THE PRESIDENT

ON CORPORATE RESPONSIBILITY

Regent Wall Street Hotel

New York, New York

11:20 A.M. EDT

THE PRESIDENT: Thank you all. Thank you very much for that warm welcome.
I\'m pleased to be back in New York City. New York City is a unique
symbol of America\'s creativity and character and resilience. In the
last 10 months, New Yorkers have shown a watching world the true spirit
of your city. (Applause.) A spirit that honors the loss, remembers its
heroes, and goes forward with determination and with confidence.

People of this city are writing one of the greatest chapters in our
nation\'s history, and all Americans are proud of New York. (Applause.)

I\'ve come to the financial capital of the world to speak of a serious
challenge to our financial markets, and to the confidence on which they
rest. The misdeeds now being uncovered in some quarters of corporate
America are threatening the financial well-being of many workers and
many investors. At this moment, America\'s greatest economic need is
higher ethical standards \-- standards enforced by strict laws and
upheld by responsible business leaders.

The lure of heady profits of the late 1990s spawned abuses and excesses.
With strict enforcement and higher ethical standards, we must usher in a
new era of integrity in corporate America.

I want to thank Bill for his introduction. There\'s nothing like being
recycled. (Laughter and applause.) But thanks for having me. I\'m
honored to meet your family and Uncle Jack. (Laughter and applause.)

I appreciate very much Secretary O\'Neill and Secretary Evans traveling
with me today. I want to thank the members of the New York delegation,
Senators Schumer and Clinton, as well as Congressman Fossella and
Congressman Rangel. I appreciate so very much the Mayor \-- my friend,
the Mayor, for being here to greet me as I came in on the chopper. Thank
you, Mr. Mayor, and thanks for the great job you\'re doing for New York.
(Applause.)

I\'m honored that Cardinal Egan is here. And I appreciate so very much
seeing John Whitehead, the Chairman of the Lower Manhattan Development
Corporation. And thank you all for coming, as well.

The American economy \-- our economy \-- is built on confidence. The
conviction that our free enterprise system will continue to be the most
powerful and most promising in the world. That confidence is
well-placed. After all, American technology is the most advanced in the
world. Our universities attract the talent of the world. Our workers and
ranchers and farmers can compete with anyone in the world. Our society
rewards hard work and honest ambition, bringing people to our shores
from all around the world who share those values. The American economy
is the most creative and enterprising and productive system ever
devised. (Applause.)

We can be confident because America is taking every necessary step to
fight and win the war on terror. We are reorganizing the federal
government to protect the homeland. We are hunting down the terrorists
who seek to sow chaos. My commitment, and the commitment of our
government, is total. We will not relent until the cold-blooded killers
are found, disrupted, and defeated.

(Applause.)

We can be confident because of the amazing achievements of American
workers and entrepreneurs. In spite of all that happened last year, from
the economic slowdown to the terrorist attack, worker productivity has
grown by 4.2 percent over the last four quarters. In the first quarter
of 2002, the economy grew at an annual rate exceeding six percent.
Though there\'s much work left to do, American workers have defied the
pessimists and laid the foundation for a sustained recovery.

We can be confident because we\'re pursuing pro-growth reforms in
Washington, D.C. Last year we passed the biggest tax cut in a
generation, which encouraged job creation and boosted consumer spending
at just the right time. For the sake of long-term growth, I\'m asking
Congress to make the tax reductions permanent. I\'m asking Congress to
join me to promote free trade, which will open new markets and create
better jobs and spur innovation. I ask Congress to work with me to pass
a terrorism insurance bill, to give companies the security they need to
expand and to build. (Applause.) And I will insist on \-- and, if need
be, enforce \-- discipline in federal spending, so we can meet our
national priorities without undermining our economy.

We have much to be confident about in America. Yet our economy and our
country need one more kind of confidence \-- confidence in the character
and conduct of all of our business leaders. The American economy today
is rising, while faith in the fundamental integrity of American business
leaders is being undermined. Nearly every week brings better economic
news, and a discovery of fraud and scandal \-- problems long in the
making, but now coming to light.

We\'ve learned of some business leaders obstructing justice, and
misleading clients, falsifying records, business executives breaching
the trust and abusing power. We\'ve learned of CEOs earning tens of
millions of dollars in bonuses just before their companies go bankrupt,
leaving employees and retirees and investors to suffer. The business
pages of American newspapers should not read like a scandal sheet.

The vast majority of businessmen and women are honest. They do right by
their employees and their shareholders. They do not cut ethical corners,
and their work helps create an economy which is the envy of the world.

Yet high-profile acts of deception have shaken people\'s trust. Too many
corporations seem disconnected from the values of our country. These
scandals have hurt the reputations of many good and honest companies.
They have hurt the stock market. And worst of all, they are hurting
millions of people who depend on the integrity of businesses for their
livelihood and their retirement, for their peace of mind and their
financial well-being.

When abuses like this begin to surface in the corporate world, it is
time to reaffirm the basic principles and rules that make capitalism
work: truthful books and honest people, and well-enforced laws against
fraud and corruption. All investment is an act of faith, and faith is
earned by integrity. In the long run, there\'s no capitalism without
conscience; there is no wealth without character.

And so again today I\'m calling for a new ethic of personal
responsibility in the business community; an ethic that will increase
investor confidence, will make employees proud of their companies, and
again, regain the trust of the American people.

Our nation\'s most respected business leaders \-- including many
gathered here today \-- take this ethic very seriously. The Business
Roundtable, the New York Stock Exchange, the NASDAQ have all proposed
guidelines to improve corporate conduct and transparency. These include
requirements that independent directors compose a majority of a
company\'s board; that all members of audit, nominating, and
compensation committees be independent; and that all stock option plans
be approved by the shareholders. I call on all the stock markets to
adopt these sensible reforms \-- these common-sense reforms \-- as soon
as possible.

Self-regulation is important, but it\'s not enough. Government cannot
remove risk from investment \-- I know that \-- or chance from the
market. But government can do more to promote transparency and ensure
that risks are honest. And government can ensure that those who breach
the trust of the American people are punished.

Bold, well-considered reforms should demand integrity, without stifling
innovation and economic growth. From the antitrust laws of the 19th
century to the S&L reforms of recent times, America has tackled
financial problems when they appeared. The actions I\'m proposing follow
in this tradition, and should be welcomed by every honest company in
America.

First, we will use the full weight of the law to expose and root out
corruption. My administration will do everything in our power to end the
days of cooking the books, shading the truth, and breaking our laws.

Today, by executive order, I create a new Corporate Fraud Task Force,
headed by the Deputy Attorney General, which will target major
accounting fraud and other criminal activity in corporate finance. The
task force will function as a financial crimes SWAT team, overseeing the
investigation of corporate abusers and bringing them to account.

I\'m also proposing tough new criminal penalties for corporate fraud.
This legislation would double the maximum prison terms for those
convicted of financial fraud from five to 10 years. Defrauding investors
is a serious offense, and the punishment must be as serious as the
crime. I ask Congress to strengthen the ability of SEC investigators to
temporarily freeze improper payments to corporate executives, and to
strengthen laws that prevent the destruction of corporate documents in
order to hide crimes.

Second, we\'re moving corporate accounting out of the shadows, so the
investing public will have a true and fair and timely picture of assets
and liabilities and income of publicly traded companies. Greater
transparency will expose bad companies and, just as importantly, protect
the reputations of the good ones.

To expose corporate corruption, I asked Congress four months ago for
funding to place 100 new enforcement personnel in the SEC. And I call on
Congress to act quickly on this request. Today I announce my
administration is asking Congress for an additional \$100 million in the
coming year to give the SEC the officers and the technology it needs to
enforce the law. If more scandals are hiding in corporate America, we
must find and expose them now, so we can begin rebuilding the confidence
of our people and the momentum of our markets.

I\'ve also proposed a 10-point Accountability Plan for American
Business, designed to provide better information to shareholders, set
clear responsibility for corporate officers, and develop a stronger,
more independent auditing system. This plan is ensuring that the SEC
takes aggressive and affirmative action.

Corporate officers who benefit from false accounting statements should
forfeit all money gained by their fraud. An executive whose compensation
is tied to his company\'s performance makes more money when his company
does well

\-- that\'s fine, and that\'s fair when the accounting is above-board.
Yet when a company uses deception \-- deception accounting to hide
reality, executives should lose all their compensation \-- all their
compensation \-- gained by the deceit.

Corporate leaders who violate the public trust should never be given
that trust again. The SEC should be able to punish corporate leaders who
are convicted of abusing their powers by banning them from ever serving
again as officers or directors of a publicly-held corporation. If an
executive is guilty of outright fraud, resignation is not enough. Only a
ban on serving at the top of another company will protect other
shareholders and employees.

My accountability plan also requires CEOs to personally vouch for their
firms\' annual financial statements. Currently, a CEO signs a nominal
certificate, and does so merely on behalf of the company. In the future,
the signature of the CEO should also be his or her personal
certification of the veracity and fairness of the financial disclosures.
When you sign a statement, you\'re pledging your word, and you should
stand behind it.

And because the shareholders of America need confidence in financial
disclosures right away, the SEC has ordered the leaders of nearly a
thousand large public companies to certify that the financial
information they submitted in the last year was fair and it was
accurate.

I\'ve also called on the SEC to adopt new rules to ensure that auditors
will be independent and not compromised by conflicts of interest.

The House of Representatives has passed needed legislation to encourage
transparency and accountability in American businesses. The Senate also
needs to act quickly and responsibly, so I can sign a good bill into
law.

Third, my administration will guard the interests of small investor and
pension holders. More than 80 million Americans own stock, and many of
them are new to the market. Buying stock gives them an opportunity to
build wealth over the long-term, and this is the very kind of
responsible investment we must promote in America. To encourage stock
ownership, we must make sure that analysts give honest advice, and
pension plans treat workers fairly.

Stock analysts should be trusted advisors, not salesmen with a hidden
agenda. We must prevent analysts from touting weak companies because
they happen to be clients of their own firm for underwriting or merger
advice. This is a flat-out conflict of interest, and we\'ll aggressively
enforce new SEC rules against this practice \-- rules which take effect
today.

And the stock markets should make sure that the advice analysts give,
and the terms they use, have real meaning to investors. \"Buy\" should
not be the only word in an analyst\'s vocabulary. And they should never
say \"hold\" when they really mean \"sell.\"

Small investors should also not have to have the deck stacked against
them when it comes to managing their own retirement funds. My pension
reform proposal would treat corporate executives the same as workers
during so-called \"blackout periods,\" when employees are prohibited
from trading in their accounts. What\'s fair for the workers is fair for
the bosses. (Applause.)

My reform proposal gives workers quarterly information about their
investments. It expands workers\' access to sound investment advice, and
allows them to diversify out of company stock. The House has passed
these measures; I urge the Senate to do the same.

Tougher laws and stricter requirements will help \-- it will help. Yet,
ultimately, the ethics of American business depend on the conscience of
America\'s business leaders. We need men and women of character, who
know the difference between ambition and destructive greed, between
justified risk and irresponsibility, between enterprise and fraud.

Our schools of business must be principled teachers of right and wrong,
and not surrender to moral confusion and relativism. Our leaders of
business must set high and clear expectations of conduct, demonstrated
by their own conduct. Responsible business leaders do not jump ship
during hard times. Responsible leaders do not collect huge bonus
packages when the value of their company dramatically declines.
Responsible leaders do not take home tens of millions of dollars in
compensation as their companies prepare to file for bankruptcy,
devastating the holdings of their investors.

Everyone in a company should live up to high standards. But the burden
of leadership rightly belongs to the chief executive officer. CEOs set
the ethical direction for their companies. They set a moral tone by the
decisions they make, the respect they show their employees, and their
willingness to be held accountable for their actions. They set a moral
tone by showing their disapproval of other executives who bring
discredit to the business world.

And one of the principal ways that CEOs set an ethical tone is through
their compensation. The pay package sends a clear signal whether a
business leader is committed to teamwork or personal enrichment. It
tells you whether his principal goal is the creation of wealth for
shareholders, or the accumulation of wealth for himself.

The SEC currently requires the annual disclosure of a CEO\'s
compensation. But that information is often buried in long proxy
statement \-- proxy statements, and seldom seen \-- seldom seen \-- by
shareholders. I challenge every CEO in America to describe in the
company\'s annual report \-- prominently, and in plain English \--
details of his or her compensation package, including salary and bonus
and benefits. And the CEO, in that report, should also explain why his
or her compensation package is in the best interest of the company he
serves.

Those who sit on corporate boards have responsibilities. I urge board
members to check the quality of their company\'s financial statements;
to ask tough questions about accounting methods; to demand that audit
firms are not beholden to the CEO; and to make sure the compensation for
senior executives squares with reality and common sense. And I challenge
compensation committees to put an end to all company loans to corporate
officers.

Shareholders also need to make their voices heard. They should demand an
attentive and active board of directors. They should demand truly
independent directors. They should demand that compensation committees
reward long-term success, not failure. Shareholders should demand
accountability not just in bad times, but especially in boom times, when
accountability frequently breaks down. Shareholders are a company\'s
most important constituency, and they should act like it.

The 1990s was a decade of tremendous economic growth. As we\'re now
learning, it was also a decade when the promise of rapid profits allowed
the seeds of scandal to spring up. A lot of money was made, but too
often standards were tossed aside. Yet the American system of enterprise
has not failed us. Some dishonest individuals have failed our system.
Now comes the urgent work of enforcement and reform, driven by a new
ethic of responsibility.

We will show that markets can be both dynamic and honest, that lasting
wealth and prosperity are built on a foundation of integrity. By
reasserting the best values of our country, we will reclaim the promise
of our economy.

Leaders in this room help give the free enterprise system an ethical
compass, and the nation respects you for that. We need that influence
now more than ever. I want to thank you for helping to restore the
people\'s trust in American business. I want to thank you for your love
of the country. And I want to thank you for giving me the chance to come
and address you today. May God bless you all. (Applause.)

END 11:47 A.M. EDT