EconoMatters, Rethinking America

Trump: Business Corruption and a “Horrible Law”

Five steps U.S. corporations should take to create a fairer society in the age of globalization.

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Takeaways


  • Perceptions of corrupt corporations are tied to the issue of income inequality.
  • The stench of greed and corruption wafts in the air.
  • End the use of offshore secret holding companies.
  • Ensure that CEOs are paid no more than 20 times the level of their average corporate employees.
  • Demonstrate that the corporation serves all of its stakeholders and not just its top executives.
  • U.S. companies should disclose political contributions with the Center for Political Accountability.

Donald Trump has claimed the Foreign Corrupt Practices Act (FCPA) is “a horrible law” and indicated he wanted it rolled back.

He is wrong. The FCPA, which was signed into law in 1977 by President Jimmy Carter, makes it a criminal offense for a U.S. corporation to bribe a foreign government official. Building on that wise U.S. initiative, in 1997, the other industrialized countries agreed on the OECD Anti-Bribery Convention.

It has led to 40 governments to approve laws that seek to curb international business bribery.

Mr. Trump has not indicated that he is aware of the OECD pact and says the FCPA places U.S. business at a disadvantage. Amazingly, not a single U.S. business leader as far as I can discover has challenged Trump on this.

Telling silence

But then, American business is strangely silent about many issues related to corporate corruption. I also cannot find a single corporate statement that shows a positive response to publication of the Panama Papers by the International Consortium of Investigative Journalists (ICIJ).

It exposed vast numbers of offshore secret holding companies, which may well be controlled by multinational businesses.

Business has been just as silent in responding to the bold statements by governments that were represented in mid-May at the anti-corruption summit in London, hosted by British Prime Minister David Cameron. The summit concluded with a rousing declaration:

Corruption should be exposed – ensuring that there is nowhere to hide; the corrupt should be pursued and punished and those who have suffered from corruption fully supported; corruption should be driven out – wherever it may exist.

I believe the public is fed up with the lack of concern with integrity that seems so evident in the behavior of many firms.

Part of the problem concerns the hundreds of millions of dollars of corporate cash that are flowing into this year’s U.S. presidential campaign. The contributions may be legal, but they are seen as buying influence.

Americans smell that is not quite right. A Pew Research poll found that 76% of Americans surveyed say that money has a greater influence on politics and elected officials today than in the past.

Perceptions of corrupt corporations are, I believe, tied to the issue of income inequality. Bernie Sanders, for example, emphasizes on the presidential campaign trail that the government/business system enriches the few at the expense of the many.

Rising inequality

The Economic Policy Institute has noted for example:

A hugely disproportionate share of economic gains (in the U.S.) from rising productivity is going to the top 1 percent and to corporate profits, instead of to ordinary workers—who are more productive and educated than ever.

It further stated “this rising inequality is largely the result of big corporations and the wealthy rewriting the rules of the economy to stack the deck in their favor.”

Put more bluntly, a major feature article in The Financial Times stated: “Globalization has been kind to CEOs and harsh on the average worker in all advanced economies.”

There may be nothing illegal about this, but the stench of greed and corruption wafts in the air. A key component of this problem for business relates to chief executive pay.

Professor Robert Reich has pointed out in his book Saving Capitalism, “the $26.7 billion distributed to Wall Street bankers in 2013 bonuses would have been enough to more than double the pay of every one of America’s 1,007,000 full-time minimum wage workers that year.”

Or, take the example of the CEO of Discovery Communications, who with pay of $156 million in 2014 was the highest paid chief executive in the top 500 companies in the U.S. and whose income was 1,900 times that of the average worker at his company.

Recently, the head of a major U.S. business association asked me what could be done to make the U.S. have a rating at the top of the annual Transparency International Corruption Perceptions Index like Denmark with a score of 91 out of a maximum 100, rather than being in 16th place with a score of 76.

Five steps U.S. corporations should take

There is no simple answer, but progress could certainly be made if leaders of major U.S. corporations directly addressed key issues and operated accordingly. Here are five actions to start with:

1. End the use of offshore secret holding companies by the main corporation, its affiliates and its subsidiaries and ensure that no corporate payments are made to such entities in tax havens.

2. Ensure that CEOs are paid no more than 20 times the level of their average corporate employees, rather than the 204 times that is now the average for America’s largest companies.

3. Demonstrate that the corporation serves all of its stakeholders and not just its top executives and shareholders. Nestlé says that “creating shared value” with society is central to its operations – all major corporations should make a similar claim and show that they are serious.

4. U.S. companies should disclose all of their political contributions and sign on with the Center for Political Accountability to ensure independent verification in this area.

5. And, finally, business leaders should tell Donald Trump that the FCPA is a good law, it should be fully enforced and it serves the best interests of honest corporations.

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About Frank Vogl

Frank Vogl is co-founder of Transparency International and author of Waging War on Corruption: Inside the Movement Fighting the Abuse of Power. [Washington D.C., United States]

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