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As Prepared
Remarks Prepared for Delivery by
U.S. Secretary of Labor Elaine L. Chao
CEO Leadership Summit
New Haven, Connecticut
Friday, June 27, 2003
Thank you, Bill [Zollars, Chairman and CEO of Yellow Corporation].
I’m pleased to be here with Dr. Jeff Sonnenfeld and this distinguished group to share some thoughts on the new paradigms facing leaders in the public, private and non-profit sectors.
Our economy has faced some tough challenges recently and interpreting the mixed signals can be difficult. First, the stock market peaked in March 2000. Then the manufacturing sector hit the doldrums in August 2000. When this Administration took office, the economy was already in a recession
that would last 3 quarters. Thanks to President George W. Bush’s leadership on taxes, the economy was beginning to show signs of turning around when the terrorist attacks of September 11, 2001 occurred. This attack cost our nation nearly 3,000 lives and 1.5 million jobs have been lost in the
aftermath.
Amidst this backdrop, there has been some positive economic news lately. Interest rates fell again to a 45-year low. Consumer confidence is higher than expected according to the most recent survey. And jobless claims decreased by 22,000 for the week of June 21.
Yet business investment is lagging and we are not creating enough news jobs for everyone who wants to work. That’s why the recently passed President’s jobs and growth package, which will stimulate new business investment and create new jobs, is so important to both our short and long
term economic future.
As leaders strategize about how to manage the larger economic forces buffeting our economy, it is important for leaders to look at how we manage our intangible—as well as our tangible-- assets. Chief among the intangible asset is trust. Trust is the missing ingredient that must be
restored if our economy is to recover its full vitality.
Our free enterprise system is built upon trust. Without it, markets cannot function, corporations cannot prosper, and investors will hide their assets under the mattress.
That’s why discussions about corporate governance—and institutional governance in general-- are so crucial to plotting a course for growth and recovery.
Recent breaches of trust have pervaded nearly every major institutional sector of our society. As a result, the public is demanding more accountability, greater transparency and more disclosure.
As Secretary of Labor and part of the President’s economic development team, I have a role to play in helping to restore public trust in our financial institutions. The Labor Department enforces—among other things-- the fiduciary responsibilities of those who manage nearly every
private pension plan in America. The Department had a role in crafting the President’s corporate governance reforms—particularly those dealing with retirement security.
I have a special interest in the integrity and leadership of our financial and corporate institutions. If a company fails, it is the Labor Department that must deal with the heart-breaking aftermath—the mass layoffs of workers and the collapse of worker pension plans.
Yesterday, I announced that the Department is taking steps to vindicate the rights of employees whose retirement assets were decimated by fraud and malfeasance at the highest levels. The Department filed suit in federal district court in Houston, Texas to recover losses that Enron employees
suffered due to the mismanagement of two of Enron’s main pension plans.
More than half the assets of Enron’s 401 (k) Savings Plan and nearly all the assets of Enron’s Employee Stock Ownership Plan consisted of Enron stock. Enron employees had a right to expect that their retirement savings would be managed with prudence and without conflicts of interest.
Yet even as the company’s financial situation disintegrated and the stock lost virtually all of its value, none of the fiduciaries of Enron’s pension plan acted to protect employees from the immense losses they ultimately suffered.
The committee charged with managing the plan did not question the prudence of holding so much Enron stock in the company’s pension plan. Not one of them acted to redirect Enron’s matching contributions to anything other than Enron stock. And no one proposed freezing or removing the
company’s stock as an investment option in the 401 (k) Plan.
When top officials were shedding their dwindling Enron assets, they and committee members said nothing and did nothing to protect the plan participants. In fact, one member of the Administrative Committee responded to allegations of financial mismanagement by trying to isolate the
whistleblower, confiscate her laptop computer and cover up her allegations.
Also named in the suit for the first time are former Enron executives Kenneth Lay and Jeffrey Skilling. They had a responsibility to select the Plans’ managers and therefore to monitor their actions. Yet on both counts, they failed their employees and their duty under the law. Mr. Lay
touted Enron stock as a good investment for his own employees—even after he had been warned that a wave of accounting scandals was about to engulf the corporation.
We also sued Enron’s former Board of Directors for failing to ever appoint a trustee for the company’s Employee Stock Ownership Plans, as specified in the plan documents and as required by ERISA. Our goal is to recover as much as possible for employees who lost their savings and
their retirement dreams in the Enron debacle.
In taking this action, this Administration is sending a strong message to every pension plan officer, director and fiduciary, that they have a solemn duty to safeguard their employees’ pension assets. If these individuals put those assets in jeopardy through neglect or malfeasance, the
government will hold them accountable.
Beyond the headlines and sound bites, this week’s events point out just how important it is for boards and management to pay attention to the governance of pension plans. It is a separate issue from corporate governance and imposes much more stringent responsibilities.
We live in an era when stock ownership has exploded and most Americans own stock through their 401(k) plans. The retirement security of millions of Americans, therefore, is now directly linked to the performance of the markets.
Sarbanes-Oxley is just one of the ways the government is addressing this shift. The Labor Department and the Securities and Exchange Commission have already issued regulations implementing the provisions of this law that level the playing field between workers and executives regarding black
out periods in pension plans. These reforms were part of the President’s retirement security package.
And the House of Representatives recently approved—by a strong, bi-partisan majority—the three remaining elements of the President’s plan in the Pension Security Act. This legislation allows employees to diversify their stock in their 401 (k) plan sooner than under current law,
and requires companies to give employees access to professional investment advice, frequent financial updates and other crucial information.
In an era when information is power, these are crucial tools for employees. These measures need to be enacted now, so we can complete the President’s agenda for corporate and pension governance reform.
But laws can only go so far. No law or government regulation can mandate integrity and character.
Restoring trust means developing a corporate culture that nurtures honesty and character. One of the lessons of Enron is that corporate culture is a powerful force in shaping the behavior of individuals within an organization.
Corporate cultures are notoriously difficult to manage, and change because they are often unspoken. They are not written down or quantifiable. But unless a leader understands the organizational culture and change core values, reform will be superficial and will not last.
Our country needs a vibrant free enterprise system, which has given so much to so many in raising the standard of living and creating wealth for our population.
We need boards of directors and leaders to step up to a higher level of accountability-- with integrity, honesty and fidelity to the best interests of those they serve. As leaders, we need to be ever vigilant to these values to spur growth and economic recovery. That is what the public is
looking for. That is what the law demands. And governance of pension assets is an area of growing concern, to which leaders need to pay greater attention.
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