Is This America's Top Corporate Crime Fighter?
[*IMO, this article is a MUST read.]
by William Greider
The Nation
FEATURE STORY | August 5, 2002
thenation.com
<<...William Lerach, the plaintiffs' lawyer reviled and feared by corporate executives, brings a sharp-edged and refreshingly anti-establishment voice to the emerging debate over how to reform corporate governance. Based in San Diego, Lerach is a fiercely opportunistic advocate for victimized shareholders and has brought hundreds of lawsuits against corporations large and small, usually for fraud. This is clearly his moment in history. Lerach's list of current defendants starts with Enron, WorldCom, Global Crossing, AT&T, Lucent and Qwest, along with many other firms where investors were duped and burned. His law firm, Milberg Weiss Bershad Hynes & Lerach, dominates the field and has an active docket of some 2,000 cases, roughly half of which involve stock-market abuses.
More significant, Milberg Weiss is opening up promising new territory for class-action litigation that could make Lerach and other trial lawyers into an important force for corporate reform--lawsuits that curb the grand larceny but also change operating routines and power structures within companies. The law firm has already won a string of minor victories in which corporations, in addition to paying cash settlements, were compelled to adopt various internal reforms--some of the same governance reforms that shareholder advocates have been pushing for years in proxy fights, usually without success.
In the present climate, Lerach and partners propose to up the ante. They are aggressively recruiting major pension funds and labor unions as plaintiffs with the promise that shareholder litigation can produce major reforms in corporate behavior--far beyond anything Congress is likely to enact or that the "self-regulating" measures proposed by financial leaders would accomplish. Their venture is untested, but has a potential to generate real leverage over the titans and a measure of power for victimized groups like investors, workers and communities...>>
<<...Obviously, he said, the most effective reform is sending executives to prison, though Lerach doubts this will happen either. Prosecutors are either too timid or outgunned by the platoons of pricey defense lawyers. "There is no criminal accountability for white-collar crime at that level; there simply isn't any," Lerach said. "The head of J.P. Morgan Chase does not give a crap if he gets caught in Enron and he has to use the Morgan shareholders' money to settle $2 billion in civil claims. He's still going to have his four homes; he's still going have his $300 million, his yacht, his life. You put him in jail for three years--not that I'm trying to pick on [CEO William] Harrison. But if he knew he had a real credible threat of going to jail for three years, he would behave differently."...>>
<<...Lerach is building his own wish list for reforming companies: Require the rotation of auditors every three years. Install a corporate ethics officer with real authority and independent reporting responsibility to the board. Also a regulatory compliance officer with similar power. Rigorous controls to prevent "option flipping," insider trading and other forms of self-dealing. A holding period on stock options that prevents CEOs from cashing out in a falling market when other shareholders are losing. "These are our companies," Lerach said. "We own them. There are reasons beyond money to litigate."...>>
<<... Lerach is also examining the widespread mismanagement of 401(k) pension funds. "I think we may be sitting on a real powder keg here," he said. "In many instances, while 401(k) money was being shoved into the company's stock, the executives were bailing out of the company's stock. That doesn't look too pretty in hindsight. The executives have $50 million or $70 million in their pocket and Joe Sixpack, who spent forty years working for the company and thought he had $150,000 to retire, has got $9,000. That's not nice." The pension-fund trustees could be sued for violating their fiduciary obligations to the employee investors by pushing them into a stock they knew was in trouble and failing to disclose the true condition of the company. There are dozens and dozens of these cases, Lerach said, that would test the limits of the federal government's own pension-fund supervision and insurance liabilities...>>
<<... Governance for whom? If the "shareholder value" doctrine is repudiated, it must be replaced with a broader understanding of the corporation's purpose, its obligations to the other constituencies like employees, communities and society at large--and their right to be heard on major policy decisions. Contentious questions will have to be settled on how to design such a realignment, but many of the best-run corporations in America have never forgotten the value of inclusiveness. They already operate, quite successfully, with an explicit culture of encouraging bottom-up participation in workplace decisions, even business policy. For the recalcitrant, reformers might propose a variety of modest steps. Every couple of years, employees (or other constituents) could participate in a vote of confidence on the CEO's performance, only advisory and with secret ballots, but a chance to vent and surface deeper problems. Or communities could have a formal right to petition the board about larger priorities. As Lerach's reforms suggested, companies could be required to maintain independent audits of their risk management and environmental behavior, regularly shared with the public. Is the company ignoring the law? What are the potential liabilities if it gets caught?...>> |
