Cutting the Corruption
Having served in Washington for eight years, I can't say that the current scandal surrounding lobbyist Jack Abramoff and various members of Congress comes as any great surprise.
During my tenure as chairman of the Securities and Exchange Commission, I worked with many decent, well-intentioned representatives and senators. Yet on issue after issue, it was clear that the interlocking systems of campaign finance, lobbying and policymaking were breaking down. Indeed, because many of the issues before the SEC were far from the front of the public's mind, the influence of high-priced lobbyists on the system was easy to detect and especially brazen.
From battles over auditing reforms to the expensing of stock options, the concerns of ordinary investors often were subsumed to the interests of industry lobbyists by Republicans and Democrats alike. Every day the SEC would receive letters from lawmakers opposing some proposed regulatory change -- letters that eerily mimicked the rhetoric of one industry trade group or another. In addition to making thousands of dollars in campaign donations, companies would concoct phony "grass-roots" coalitions -- usually made up of executives and compliant employees -- to rally for the cause and pressure lawmakers.
And when all else failed, lobbyists would cash in their chits with members of relevant House and Senate committees to threaten the SEC -- an independent regulatory agency -- with budget cuts to get what they wanted. Regrettably, I occasionally found myself succumbing to this immense pressure in order to save the commission. Many of the reforms that were thwarted in this way could have saved investors some of the pain from the scandals of the past five years.
Now removed from Washington and viewing its problems from the perspective of the private sector, I've come to think that our federal government is plagued by some of the same problems that have been hurting corporate America, primarily a lack of transparency, accountability and independence. As with many of the disgraced corporations of the past few years -- Adelphia, Tyco and WorldCom, for example -- so it is with Congress: Conflicts of interest abound, oversight has been myopic and those given the public's trust have used it to enrich themselves.
The debate about how to clean up Congress has just begun, and undoubtedly it will consume much of that body's time during this election year. But lawmakers need not look far for an example of how to reform themselves. Just as Congress passed the Sarbanes-Oxley Act in 2002 to clean up American industry, it should pass similar legislation to clean up American government.
One of the emphases of Sarbanes-Oxley was improving the disclosure regime in corporate America. New rules expanded what critical information was disclosed and how often, and they required the CEO and chief financial officer to attest to the accuracy of their company's financial reports. As a result, it is possible to know more about the performance of an executive of a company in which you own stock than about your member of Congress.
To remedy that, congressional lobbyists should be required to disclose weekly, online, which members of Congress they contributed to and met with, which staff members they lobbied, and what issues were discussed. Lobbyists also should have to affix their signature to these disclosures and, like CEOs who sign false financial statements, face serious criminal penalties if the disclosures are not accurate.
But disclosure is only part of the solution; independence is also critical. That's why auditing firms are now forbidden from providing non-audit services to auditing clients, why companies can no longer give personal loans to executives or directors, and why a majority of a board of directors must be independent of the company itself. In Washington, any number of conflicts of interest between members of Congress, their staffs, lobbyists and contributors must be untangled. To begin to do this, former members of Congress should be prohibited from visiting the floor of the House, the prohibition on lobbying by former members and their staffs should be extended from one year to four, and all gifts and travel for members and their employees should be banned.
Finally, accountability must be restored. Currently, Congress's ethics committees resemble some of the worst corporate boards from the mid-1990s -- appointed by management and wholly dependent on it for career advancement. Just as corporate boards have been strengthened by rules establishing independent audit committees, Congress would be well-served by scrapping its current ethics committees and replacing them with an independent ethics commission made up of former judges, former members of Congress and other eminent citizens.
Moreover, as with good corporate governance, there needs to be more democracy in American governance. Partisan gerrymandering has created a Congress in which more than 95 percent of the members are assured of keeping their seats for life. Just as shareholders must have access to the proxy to hold corporate board members accountable, citizens must be confident that when they go into the voting booth their votes will be meaningful. It's time to explore ways to lower the barriers of entry for challengers -- through, for instance, free television airtime for all candidates. And to create more competitive congressional districts, we need to follow the leads of states such as Arizona and Iowa and put the responsibility of drawing district boundaries in the hands of nonpartisan boards.
But ultimately, no rule or regulation can transform an organization on its own. What's needed is a cultural change in which those who do the bidding of lobbyists, cash in their positions on Capitol Hill for huge paychecks and accept gifts are scorned, not praised. Accomplishing that requires real leadership, and that's something that only we -- as citizens and voters -- can give to ourselves.
The writer was chairman of the Securities and Exchange Commission from 1993 to 2001. He is now a senior adviser to the Carlyle Group, a global investment firm.