"When Congress returned in 1934 to complete the federal disclosure tapestry, it created express private causes of action for misleading reports filed with the Securities and Exchange Commission (SEC) as part of the newly enacted continuous disclosure requirements, (3) provided private recoveries for market manipulation, (4) and authorized suits on behalf of reporting companies for short-swing profits garnered by certain insiders (Cox, Thomas, and Kiku, 2003)."
The creation of the SEC as a government body for oversight arose out a recognition by the courts that private action was not enough to protect investors and consumers from the materially misleading representations of corporate America (Cox, Thomas, and Kiku, 2003). Since its creation, however, the numerous laws and regulations that have come to frame the world of corporate governance have exceeded the limits of manageable governance. By the time the SEC has identified a problem, pursued investigation of the corporate representations of public offering, performed forensic accounting, and compared potential corporate malfeasance to the Sarbanes-Oxley Act of 2002 (arising out of the Enron debacle); it can be years before the investigations and examinations of accounting practices are put into a coherent dialogue as to be able to swiftly bring to justice the perpetrators of fraud, much less give investors or potential investors a heads up that they have been swindled. In fact, it is the design of the SEC processes that they not go public with their investigations, because just the whisper of it on the wind could ostensibly bring on a frenzied selling of investments that could be more harmful than the fraud and malfeasance being investigated.
The SEC is not a social welfare agency. It is not the mission of the SEC to establish legal cases for private individuals or groups of individuals pursuing class action law suits (Cox, Thomas, and Kiku, 2003). If we examine the historical role of the SEC in uncovering corporate malfeasance and fraud, it would probably suggest that SEC investigations have led to relatively few cases of corporate leaders being prosecuted and imprisoned, but rather that the SEC has collected large fines from corporations (not distributed to defrauded shareholders), and that certain corporate leaders, CEOs and CFOs, and lesser managers, have been prohibited from sitting on the boards of publicly traded companies, or from ever again being responsible for the leadership of a publicly traded company. Until recently, it is only the most egregious cases of fraud and malfeasance where the SEC has built cases against individuals that have been used to prosecute, rather than remove, corporate leaders. This, of course, does not satisfy the investor groups or individuals who have experienced significant financial losses as a result of corporate avarice.
"More significantly, numerous regulatory provisions of the securities laws create problems that prevent the meaningful pursuit of violations by private plaintiffs. In many cases, the loss suffered by the plaintiff or even a group of plaintiffs may not rise to a sufficient level to attract the interest of the entrepreneurial plaintiffs' attorney. And, the expected gains of the suit may be heavily discounted by both the plaintiff and his attorney, due to problematic elements such as establishing or even pleading key elements of the case. (18) The plaintiff may, not withstanding a clear violation, face causation or standing requirements. (19) Or, the violation may not have been discovered within the applicable limitations period. (20) It can also be the case that the violation is simply of the type for which no private action exists. The net capital requirements of brokers, (21) the requirement of reliable internal controls and records, (22) and compliance with the independence requirements of auditors and audit committee members (23) are examples of such provisions. The absence of a private action may well be because the nature of the regulation is one that focuses not on investor protection as such, but rather on achieving desired efficiency or general confidence in the market. Violation of such a broadly-based social objective is a poor candidate to isolate particular investor harm and, therefore, to equip the investor with a private enforcement remedy, let alone to exclude the SEC from enforcement. If the SEC then is to have an enforcement mission, why not allow its actions to cover those violations where there may also be private harms that arise from the violation. A related factor is the a priori concern that private actions may well be fortuitous, but that SEC actions may be more deliberate in their focus. As we will see in the data assembled in this Article, there is little overlap between private and SEC suits. This finding documents the a priori assumption that reliance solely on private enforcement will in turn depend on serious imperfections in the market for private suits . . . (Cox, Thomas, and Kiku, 2003)."
Little, if any repercussion or suffrage has been the experience of corporate leaders dethroned by the SEC for wrongdoing, or failure to keep corporations in check, because of the multi-million dollar salaries and golden parachutes paid to corporate executives. Even if they are prohibited from holding key positions in companies or on boards of publicly traded corporations, it is difficult to believe that these toppled giant income earners would suffer for it should they be forced to retire from their business careers. Rather, it is the role of the SEC to provide governance, oversight that causes a corporate entity to right itself, not to put it out of business.
What has been observed and come to be understood by the public through the course of recent events is that Wall Street has over many years built a fragile house of cards that needed just one or two strong winds to blow it down. Terry L. Besser (2002, p. 13) states that there is an expectation amongst the public, even the non-investing public, that American businesses owe something back to society for the profits they reap. This is an entitlement kind of thinking, one that stands in stark contrast to the traditional business model. What, beyond the product or service, do corporations owe to their communities? It is this very obscuring of lines of expectation and return for business enterprise that has in large part created dual environments of corporate and investor greed, and the perilous condition of the American economy today.
Rather than comport to the expectation of a social conscience, we see American businesses reinstituting their selves in foreign lands, taking away jobs and other incomes peripheral to business that was once conducted in the states. The pressures put upon corporations to accept risks to increase growth and profit, thereby increasing shareholder growth and profit, plays no small role in the malfeasance and fraud perpetrated by corporate America (Skeel, 2005). David Skeel (2005, p. 193) states: "We have met the corporation and it is us."
Recent acts by President George W. Bush and his successor, President Hussein Obama, have led to the next phase of corporate America: corporate welfare. For those companies that remain stateside, and continue to act as if they're doing business in America, the rewards have already proven to be profitable for them. The only solution is to take social conscience out of business, so that it can be perceived for what it is: profit focused production and operations for which the consumer receives that which is purchased from that company. Consumerism, not social conscience, drives the success and the profitability of corporate America. That is capitalism.
Anderson, Jonas V. 2008. Regulating Corporations the American Way: Why Exhaustive Rules and Just Deserts Are the Mainstay of U.S. Corporate Governance. Duke Law Journal 57, no. 4: 1081+. Database online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=5027008674. Internet. Accessed 16 June 2009.
Angelidis, John P., and Nabil A. Ibrahim. 1993. Social Demand and Corporate Supply: A Corporate Social Responsibility Model. Review of Business 15, no. 1: 7+. Database online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=5001675246. Internet. Accessed 16 June 2009.
Bavly, Dan A. 1999. Corporate Governance and Accountability: What Role for the Regulator, Director, and Auditor?. Westport, CT: Quorum Books. Book online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=114694551. Internet. Accessed 16 June 2009.
Besser, Terry L. 2002. The Conscience of Capitalism: Business Social Responsibility to Communities. Westport, CT: Praeger. Book online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=106996136. Internet. Accessed 16 June 2009.
Cox, James D., Randall S. Thomas, and Dana Kiku. 2003. SEC Enforcement Heuristics: An Empirical Inquiry. Duke Law Journal 53, no. 2: 737+. Database online. Available from Questia, http://www.questia.com/PM.qst?a=o&d=5006399949. Internet. Accessed 16 June 2009.
Skeel, David. 2005. Icarus in the Boardroom: The Fundamental Flaws in Corporate America and…