On Monday, President Bush defended his stewardship of Harken Energy, a company on whose board of directors he served more than a decade ago. On Tuesday, Bush called for corporate responsibility in a speech on Wall Street. There are standards and assumptions under which the explanations Bush gave Monday can be defended, and there are company directors whose conduct can be defended under the standards and assumptions Bush outlined Tuesday. But there’s no way to square the rules Bush applied to himself on Monday with the rules he applied to others on Tuesday.
The key facts in the Harken case are these: Bush sold more than $800,000 worth of stock in Harken in June 1990, two months before the company reported a far larger quarterly loss than investors had anticipated. Millions more in Harken losses had been concealed by suspect accounting of the sale of its subsidiary, Aloha Petroleum, in 1989. The SEC challenged the propriety of this accounting, and in January 1991, seven months after Bush sold his stock, Harken revised its books accordingly, nearly quadrupling the net loss it had reported. A form on which Bush was supposed to report his stock sale wasn’t filed until eight months after it was due. However, he did file on time a form reporting his intent to sell the stock.
Let’s compare Bush’s Monday and Tuesday remarks on four issues.
1. Personal responsibility. Years ago, Bush said his form was filed late because the SEC had lost it. Last week, Bush spokesman Ari Fleischer retracted that claim and blamed Bush’s lawyers: “The President believed at the time that he had filled out all the paperwork that was required, and it was filed, and that the lawyers did as they were required to do.” Monday, Bush was asked why, as a member of Harken’s audit committee, he didn’t know at the time of his stock sale that the company’s books were inaccurate. He replied that the inaccuracy “came up after I sold the stock.” In other words, he wasn’t responsible for knowing about inaccuracies until the SEC caught them.
Tuesday, Bush called for “a new ethic of personal responsibility in the business community.” Specifically, he asserted, “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.” He added that shareholders “should demand an attentive and active board of directors.”
2. Exploiting ambiguity. Monday, Bush called Harken’s initial accounting of the Aloha sale “an honest difference of opinion as to how to account for a complicated transaction. … Sometimes the rules aren’t as specific as one would expect.” He explained to reporters that “in the corporate world, sometimes things aren’t exactly black and white when it comes to accounting procedures. … Sometimes there’s differences—an ability to interpret one way or the other.”
Tuesday, Bush demanded “higher ethical standards—standards enforced by strict laws … 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.” Bush pledged to “end the days” of “shading the truth,” and he declared that honest businessmen “do not cut ethical corners.”
3. Adequacy of oversight. Monday, Bush brushed aside all questions about Harken by noting that the SEC had found no proof of wrongdoing. Why had Bush filed his form late? “This has been fully vetted. It has been looked at by the SEC,” he replied. Why hadn’t he known the books were inaccurate? “All these questions that you’re asking were looked into by the SEC,” he said. What was his role in the Aloha sale, and was that sale a ruse to conceal losses? “This and all matters that related to Harken were fully looked into by the SEC,” said the president.
Bush assured the press that the SEC probe of Harken was “full” and “very thorough.” When he was asked whether he would instruct the SEC to release all records related to the probe, he replied that the SEC had already demonstrated that “there’s no ‘there’ there.” As evidence for this conclusion, he touted an SEC “document” that declared, “[I]t appears that Bush did not engage in illegal insider trading because it does not appear that he possessed material nonpublic information.” The “document” wasn’t evidence; it was the conclusion for which reporters were requesting documentation. In short, Bush was asking reporters to take at face value the SEC’s assertion of the adequacy of its oversight.
Tuesday, Bush bemoaned the SEC’s inadequacy. He chastised Congress for failing to fund “100 new enforcement personnel in the SEC” in order “to expose corporate corruption.” He pleaded “for an additional $100 million in the coming year to give the SEC the officers and the technology it needs to enforce the law.” He outlined “a 10-point Accountability Plan” aimed at “ensuring that the SEC takes aggressive and affirmative action,” and he urged the SEC “to adopt new rules to ensure that auditors will be independent and not compromised by conflicts of interest.”
4. Late corrections. Monday, Bush argued that the SEC’s eventual correction of Harken’s books—a correction that wasn’t made until after Bush had sold his stock—proved that “the system worked.” The SEC “made the decision that Harken ought to restate some earnings, which Harken did,” said the president. “And that’s how the system is supposed to work.”
Tuesday, Bush demanded that ordinary investors receive the same timely information available to insiders. While government could punish wrongdoing after the fact, he argued, it could also “do more to promote transparency and ensure that risks are honest.” He stressed the importance of “moving corporate accounting out of the shadows, so the investing public will have a true and fair and timely picture of assets and liabilities.”
Bush was elected on a promise to end the contradiction between presidential rhetoric and presidential rationalization. So far, all he’s done is change the subject from sex to money.