What’s Behind Corporate Corruption?
In 1999, 51 of the top 100 economies in the world were corporations. Comparing corporate sales to country gdp (gross domestic product), only 49 of the biggest economies were countries, according to a report by the Institute for Policy Studies.
To put this in perspective, today Sony’s sales are bigger than Syria’s gdp; ibm is bigger than New Zealand; General Electric is bigger than Venezuela; General Motors is bigger than Portugal; and Wal-Mart is now bigger than Saudi Arabia! The study also showed that sales revenue of the world’s top 200 conglomerates was growing faster than worldwide gdp and by 1999 equaled 27.5 percent of total world gdp.
These facts illustrate the sheer wealth associated with modern business. Throughout most of human history, wealth has proceeded from political power. In the last two centuries, however, with the development and growth of democracy and free-market economies, a new dynamic has emerged. The fortunes amassed by business barons like Rockefeller, Rothschild and Vanderbilt proved that great affluence was no longer conditioned upon political heritage or first acquiring political power. The new road to fame and fortune, at least in those countries with developed market economies, was paved by business.
Today, the really big incomes are derived not from the political arena, but from the corporate sector. Some of the richest people on Earth are Bill Gates (Microsoft founder), Warren Buffett (world-renowned investor) and the descendants of Sam Walton (Wal-Mart founder). Indeed, the salaries of politicians and public officials pale into insignificance when compared to today’s corporate executives.
The executives who run these corporate behemoths routinely wrestle with a mountainous pile of challenges. At the same time, they are expected to outwit and outmaneuver their fiercest competitors.
Many of the “winners” in this high-stakes competition are unscrupulous and ruthless—dishonest at best. Do you know why? In this article, we will expose the root cause of corporate corruption.
Corporate Power and Influence
As human nature would have it, the colossal economic clout of today’s corporations has manifested itself in the political process: Corporations now wield an enormous amount of influence in the political sphere. In the United States, campaign contributions from big business, designed to influence political agendas, are legendary. In the 2000 elections, 94 percent of successful contenders for the House of Representatives outspent their opponents. It’s a plain and simple fact that one cannot expect to be elected to government office without a huge wad of money to spend. Those who control the corporate coffers are all too eager to oblige the needy candidate—as long as there’s a good chance the company will benefit from it.
Of course, corporations also spend an enormous amount of cash to lobby elected politicians in the corridors of power in Washington, d.c. Most of the big companies have “government relations” offices on or near K street—the most active lobbying center in the world. Professional lobbyists are paid to advocate the interests of the company they work for. It’s estimated, for example, that the pharmaceutical industry has more lobbyists than Capitol Hill has legislators!
In a letter to George Washington, Thomas Jefferson said, “Of all the mischiefs … none is so afflicting, and fatal to every honest hope, as the corruption of the legislature.” Human nature hasn’t changed. Over 200 years later, the captains of industry dish out tens of millions of dollars to American legislators, which they readily accept. Some have called this legalized bribery.
For example, legislation often gives big companies enough tax loopholes, rebates and credits that they pay no income taxes. Under President Bush, these tax breaks have been greatly expanded according to Citizens for Tax Justice and the Institute on Taxation and Economic Policy. In a report they jointly published in September 2004, they point out that 46 of America’s 275 largest corporations paid no federal income taxes in 2003—none. Furthermore, for the years 2001 through 2003, 82 of those companies (30 percent) paid no federal income taxes in at least one of those years. All 275 companies were profitable in each of the three years. Overall, corporate federal income tax payments from all U.S. corporations fell by 21 percent during the same time period, while pretax corporate profits grew by 26 percent,
When corporate funds grease the wheels of politics, corporate exploits go largely unchecked. Take the more than 11,000 toxic Superfund sites in the U.S. (A Superfund site is land that has been contaminated by hazardous waste and declared by the Environmental Protection Agency to pose a risk to human health and/or the environment.) The law that required industrial polluters to pay for the cleanup costs expired in 1995 and was not renewed. Now the taxpayers are expected to pay. Some of the worst sites are from mining operations. The General Mining Act of 1872—still in force—allows mining companies to buy government land for a paltry $5 an acre (1872 prices), extract whatever minerals they find, and pay no royalties to the government—not even to help offset the costs of cleaning up the abandoned sites.
In this age of environmental consciousness, is there any doubt that the mining lobby is deeply entrenched in Washington?
Some politicians admit to the influence of mammon in government. In America’s lawmaking bodies, “People who contribute get the ear of the member and the ear of the staff. They have the access, and access is it. Access is power. Access is clout. That’s how this thing works”—former Rep. Romano Mazzoli (Associated Press, April 25, 1995). The New York Times quoted Sen. Robert C. Byrd, who said: “Money! It is money! Money! Money! Not ideas, not principles, but money that reigns supreme in American politics!” (March 20, 1997).
In essence, our democracy “for the people” has been transformed into a government for the highest bidder.
One of the lessons of human history is that unchecked power tends to become a corrupting force. It’s the road human nature travels. Corporations, after all, are run by people. So as corporate power grows, corporate corruption often follows in its path.
It’s been over three years since the poster child for corporate fraud—Enron—filed for bankruptcy. On paper, it was the seventh-biggest company in the U.S. When massive fraud was revealed and Enron collapsed, thousands were thrown out of work. The price tag for employees, investors and pensioners was estimated to be a staggering $100 billion.
WorldCom perpetrated an $11 billion fraud by hiding expenses and inflating profits. Adelphia executives were charged with squandering company assets for personal pleasure. Prosecutors seek penalties of $2.5 billion. Rite Aid inflated its net income by $1.6 billion, then destroyed documents and fabricated others to cover up the fraud. These are just a few examples of egregious conduct where not millions, but billions of dollars were misappropriated!
What role do the big brokerage firms play? They’re supposed to give investors sound advice about a company’s health. In 2002, the independent firm of Weiss Ratings released a study that revealed, “Even when there was abundant evidence that companies were on the verge of bankruptcy, over 90 percent of the latest ratings issued by brokerage firms continued to tell investors to hold their shares or buy more.” They looked the other way if money could be made from commissions.
Merrill Lynch was caught recommending stocks of failing companies to mainstream investors while forewarning some very wealthy investment bankers that those same stocks were “junk.” It appears it was willing to make money off the little guys but refrained from giving bad advice to its wealthiest clients for fear of losing their business.
The world’s largest insurance broker, Marsh and McLennan, was sued late last year by New York Attorney General Eliot Spitzer. Rather than get the best insurance policy prices for their clients, as they are required to do, Marsh brokers allegedly received kickbacks from select insurance companies to steer corporate clients their way. Marsh has also been accused of rigging bids. When Spitzer first announced the probe last October, he said, “The damages are vast; the corruption is remarkable.”
One might hope that corporate boards could do something to stem the scandals. In reality, to most sensible people, board directors seem very lax toward the executives they oversee. For example, the ceo of PeopleSoft admitted he lied to Wall Street analysts and misled investors with his comments about Oracle’s attempted takeover at the time. Result? Although he was fired, the board approved about $50 million in severance pay and benefits!
After immense pressure, Fannie Mae’s board recently let its ceo go under a cloud of very serious allegations dating back to 1998, including sales of mortgages known to be bogus, earnings misstatements of at least $9 billion and manipulation of accounting entries affecting millions of dollars in bonuses for himself and several other executives. Now the board says he is due a bonus and more than $19 million in deferred compensation and stock. Plus, they want to give him retirement money of $1.4 million per year and pay the premiums on his multi-million-dollar life insurance policy!
Another example is the giant drug company Merck. An estimated 139,000 people have either died or had serious side effects after using Merck’s popular painkiller Vioxx, which in 2003 raked in sales of $2.5 billion. There is evidence that Merck knew as early as 1999 that Vioxx could cause heart attacks and strokes. Last November, just two months after Merck, under intense pressure, pulled Vioxx off the market, the board approved golden parachutes for 230 of its executives. In case their jobs are jeopardized in the future, the severance plan (even if they quit voluntarily) would give executives bonuses and one-time payments of up to three years’ salary!
The bottom-line message to wayward corporate executives seems to be that as long as the company is profitable, they will be taken care of with fat retirement and severance pay even if practices are not quite legal.
Pfizer has had similar problems to Merck with its painkiller Celebrex. Over the last seven years or so, many drugs have been pulled off the market after initial approval by the Food and Drug Administration (fda). So why do these drugs get approved by the fda in the first place? Are they tested as rigorously as they should be? It appears the drug companies have a good deal of influence at the fda.
In 1992, the drug industry negotiated a deal with the fda. In exchange for a faster review process of new drugs, the drug companies pay user fees to the fda. These fees now pay more than half the salaries of the review staff! Also, most fda employees either used to work for drug companies or plan to in the future. This is known as “revolving door” access. Moreover, many of the fda employees have financial ties to the pharmaceutical industry.
On top of that, fda advisory committees, according to a USA Today study published Sept. 25, 2000, are not truly independent. The experts on these committees advise the fda on whether to approve a drug, what warning labels are appropriate, and how evaluations should be designed. The study found that 54 percent of the time, the experts either owned stock in the company that produced the drug under evaluation, or they had received consulting fees or research grants from it. No wonder the chairman of the Senate Finance Committee recently complained that the fda has a much too cozy relationship with the drug companies.
In a similar vein, some have highlighted the undue influence of the giant agribusiness firms at the U.S. Department of Agriculture (usda). Big agribusiness has been accused of infiltrating the usda and promoting policies that serve the interests of the very large producers and major food processing corporations, at the expense of the public health. One astute commentator laments that the unhealthy foods provided by the food industry help cause disease, followed up by the drug industry that peddles questionable and expensive drugs as the cure!
Almost daily, the Wall Street Journal has stories about corporate corruption nowadays. But what can be done about it? Nothing—unless and until we deal with the root cause.
A Spirit of Competition
We have already alluded to the heart of the problem: human nature. It is a competitive nature—always taking sides against the other side—that promotes a spirit of rivalry. While human nature naturally and appropriately loves the self and extended self (your own possessions, your group, your team, your political party), it becomes antagonistic toward others not included in its domain.
The Bible identifies this evil propensity of human nature as “rivalry, factions [and] party-spirit” (Galatians 5:20, Moffatt translation). This competitive spirit permeates our whole society!
Take politics, for example. In the U.S., the Democratic Party is full of party-spirit—and so is the Republican Party. Instead of high-caliber speeches full of wisdom, proper judgment and noble statesmanship, what do we hear? Mostly mud-slinging attacks against the opposition. Our society has become so politicized by party affiliation that it is virtually impossible to witness or engage in an honest and unprejudiced discussion of political issues.
Another place we find this competitive spirit is in sports. For example, most American universities participate in intercollegiate athletics. College A has a basketball team. So College A and its team become part of the extended self of that college’s students. College B is considered the enemy that must be defeated. It’s not enough to regard the benefits of rigorous exercise, teamwork, sportsmanship and other character-building opportunities that sports afford. Human nature dictates that it’s more important for the empirical self to prevail against the other side.
Likewise, business and industry is founded on the same principle. The business world has been compared to a jungle of cut-throat, dog-eat-dog competition. According to the Wall Street Journal (March 3), a group of 293 chief financial officers in the U.S. were asked to disclose their top four concerns. The survey revealed that 53 percent cited high health-care costs, but a very close second was intense competition, at 52 percent. A common saying among businessmen is, “Nice guys finish last.” Consequently, the self-seeking competitive spirit, coupled with greed, fuels all kinds of corporate malfeasance.
In an effort to increase market share and stay ahead of the competition, advertising campaigns, for instance, are routinely deceptive and dishonest and all too often appeal to vanity and wrong desires. Big business generally will do whatever it can get away with to promote its brand name above the competition.
For example, when tobacco companies quit targeting U.S. children, it was not because of a moral conscientiousness. Now they target the youth of South America, Africa and Asia, because the laws there allow it. About a fourth of these youngsters are projected to die from tobacco-related disease!
Not satisfied with U.S. sales, perhaps because of a renewed appreciation for the benefits of mother’s milk, the baby-formula giants promote anxiety about mother’s milk in less-educated, Third World countries. As a result, highly sugared baby-formula, sometimes contaminated with polluted village water, sells. A baby who is fed formula is 10 times more likely to be hospitalized in the first year of life for serious illness than one who is breastfed. Moreover, unicef (in 1991) and the World Heath Organization (in 1998) estimate that about 1.5 million babies a year die from bottle-feeding-related illness!
These examples illustrate that the spirit of competition, party-spirit and plain greed know no boundaries. Man is enslaved by his own nature!
The Origin of Human Nature
Why, one could ask, would God create such a vile side of human nature? The answer is: He didn’t. God’s creation was “very good” (Genesis 1:31). Where did human nature come from then? It goes back to the time that sin first entered the universe—when the spirit of competition replaced the spirit of total cooperation.
Herbert W. Armstrong, in his book Mystery of the Ages, explained: Lucifer, a mighty archangel, “was created gloriously beautiful—perfect in beauty, but he allowed vanity to seize him. Then he turned to erroneous reasoning. … He reasoned that competition [emphasis mine] would be better than cooperation. It would be an incentive to excel, to try harder, to accomplish. There would be more pleasure in serving self and more enjoyment.
“He turned against God’s law of love. He became jealous of God, envious, and resentful against God. He allowed lust and greed to fill him, and he became bitter. This inspired a spirit of violence! He deliberately became his Maker’s adversary and enemy. …
“God changed the adversary’s name to what he became, Satan the devil—Satan means adversary, competitor [emphasis mine], enemy.”
Some time after this rebellion, God created Adam—with the potential to become a son of God. Yet Adam succumbed to Satan’s way of choosing to “do his own thing,” violating a direct command of God. From that point forward, for a period of 6,000 years, God has allowed Adam and his progeny to be swayed by the devil. That’s where the evil side of human nature comes from—the mind of the devil! Babies are not born with it but are soon subjected to Satan’s influence. He broadcasts (much like television and radio signals) to the spirit in man, injecting attitudes, moods and impulses of self-centeredness and selfishness, including the spirit of competition and greed. Human beings are automatically tuned in to Satan’s wavelength. To learn more about human nature, you may request our free booklet Human Nature: What Is It?
Corporate corruption stems from the expression of this evil human nature that, under the influence of Satan, is impossible to overcome without God’s help.
Man is not equipped to solve this problem; though he tries, his best efforts to do so are doomed to fail.
After a series of high-profile corporate scandals led by Enron, the U.S. Congress passed the Sarbanes-Oxley Corporate Reform Act in July 2002. It has been criticized as an over-reaction—far too costly and burdensome. The big companies are spending tens of millions of dollars per year to comply with its mandates. In total, the money spent by business to conform to the new law is over $5.5 billion per year. Some have complained that this has hampered the economic recovery and the creation of new jobs. Concerned business groups are lobbying for changes to the law and an easing of the enforcement climate.
There have been other unintended side effects as well. Many international companies required to report to the Securities and Exchange Commission (sec) are considering whether to withdraw from the U.S. stock exchange, and some have already initiated the process to do so. Others fear that new companies from the developing markets will forego the U.S. and list with European stock exchanges instead.
Meanwhile, chief financial officers (cfos) and their staffs are under enormous pressure, reports the editor in chief of CFO magazine, and many cfos are throwing in the towel. In the last three years, about 225 cfos of Fortune 500 companies have quit!
The backlash is resonating in Washington’s ears. Treasury Secretary John Snow has urged regulators and prosecutors to be “balanced” when enforcing the statute. Furthermore, the sec has agreed to extend the compliance deadline for small companies and those outside the U.S. to July 2006.
Man’s best efforts at solving problems often have unintended side effects because he is cut off from God and spiritual knowledge. Consequently, man typically treats the effect of a problem rather than the cause. Result? In our attempt to fix one thing, something else goes wrong.
Corporate corruption will not go away with more legislation. That solution ignores the cause. If new burdensome laws do mitigate it somewhat, other problems will surface in its place—they already have.
Yet there is another choice: God’s way. He treats the cause. That means human nature must change. For that, we need God’s help—but man will not yetyield to God! The only permanent and workable solution can’t be implemented until man comes to deeply realize that he needsGod! That time is almost here.
When Jesus Christ returns, Satan will be bound and prevented from broadcasting his spirit of competition. Party-spirit and rivalry will be rooted out of society. Then everyone’s human nature will finally be changed! God promises, at that time, “I will give you a new nature, and I will put a new spirit into you, I will take away your hard nature …” (Ezekiel 36:26, Moffatt translation). What a fantastic prophecy! That is the solution to all of man’s problems.