moon soup

The New York Times

April 1, 2008
Colorado Proposes Tough Law on Executive Accountability By DAN FROSCH

DENVER — For 30 years, Lew Ellingson loved being a telephone man.

His job splicing phone cables was one that he says gave him “a true
sense of accomplishment,” first for Northwestern Bell, then US West
and finally Qwest Communications International.

But by the time Mr. Ellingson retired from Qwest last year at 52, he
had grown angry. An insider trading scandal had damaged the company’s
reputation, and the life savings of former colleagues had evaporated
in the face of Qwest‘s stock troubles.

“It was a good place,” he said wistfully. “And then something like
this happened.”

Now, Mr. Ellingson is the public face of a proposed ballot measure in
Colorado that seeks to create what supporters hope will be the
nation’s toughest corporate fraud law.

Buttressed by local advocacy groups and criticized by a Colorado
business organization, the measure would make business executives
criminally responsible if their companies run afoul of the law. It
would also permit any Colorado resident to sue the executives under
such circumstances. Proceeds from successful suits would go to the
state.

If passed by voters in November, the proposal would leave top
business officers having unprecedented individual accountability,
said Mr. Ellingson, a member of Protect Colorado’s Future, a
coalition of advocacy groups that supports the initiative.

“If nothing else, these folks in charge of the corporations and
companies will think twice about cutting corners to make themselves
look more profitable than they really are,” he said.

The plight of Mr. Ellingson’s former employer, Qwest, based in
Denver, was a motivation for the proposal, said Jess Knox, executive
director of Protect Colorado’s Future.

Last April, a jury in Denver convicted Qwest‘s former chief
executive, Joseph P. Nacchio, of 19 of 42 counts of insider trading.
Mr. Nacchio was sentenced to six years in prison and ordered to pay a
fine of $19 million and forfeit $52 million in money he earned from
stock sales in 2001.

In March, however, a federal appeals court panel reversed the
conviction on the grounds that a judge had improperly excluded expert
defense testimony.

The panel ordered that Mr. Nacchio receive a new trial in front of a
different judge.

“The reality is that for years, not just in Colorado but in many
states, citizen taxpayers have paid the price for C.E.O.’s and
companies who break the rules in order to get ahead,” Mr. Knox said.

Ultimately, the proposal would extend criminal and civil liability to
executives who knew about corporate fraud and did nothing to stop it,
but who were not necessarily involved in it, said Mark Grueskin, a
lawyer for Protect Colorado’s Future.

Not surprisingly, the proposal, and subsequent versions with
alternative language that have been suggested by Protect Colorado’s
Future, has generated sharp opposition from Colorado’s business
community.

If the measure is approved, some fear that the courts will become
overwhelmed with frivolous lawsuits. Those lawsuits, in turn, could
bankrupt small and midsize companies and make it more difficult for
legitimate lawsuits to succeed, said Joe Blake, president and chief
executive of the Denver Metro Chamber of Commerce.

“We’re very concerned that any number of people could crowd the
docket and frustrate the court system with suits that are perhaps
well-intentioned but highly frivolous,” he said. “We’re going to have
chaos out here.”

Mr. Grueskin countered that the measure would parallel current state
law and require plaintiffs to pay for their lawsuits if a court ruled
that they were frivolous.

“There is an inherent disincentive to use this as a means for a
gadfly to act as a corporate obstructionist,” he said. “I would be
surprised if there would be many responsible companies that would
have a problems with this.”

Legal fees aside, Dean Krehmeyer, executive director of the Business
Roundtable Institute for Corporate Ethics at the University of
Virginia, which conducts ethics training for executives and
directors, says the litigious nature of the measure could create a
chasm between businesses and their communities.

“Leading business organizations and communities can create value by
working in partnership, not necessarily by using the courts as a
first option,” he said.

The measure, whose language was already approved by a state title
board, must receive 76,000 signatures in support within six months to
be placed on the November ballot. Protect Colorado’s Future said it
planned to start a signature campaign.

A lawyer for the chamber of commerce, Doug Friednash, said the
business group would file a challenge to the proposal in Colorado
Supreme Court on Tuesday. He said the language could mislead voters
into thinking they were supporting a measure that simply cracked down
on crooked executives, as opposed to one that left business owners
and other employees susceptible to lawsuits.

But Protect Colorado’s Future has already drafted a modified version,
cleared by the review board, that limits the initiative to executive
officials, its true intention, the group said. The chamber of
commerce, has asked the board to reconsider its decision on that
version at a hearing on Wednesday.

Regardless of which version of the measure is put to voters, Mr.
Ellingson predicts that Coloradoans, with the fallout from Qwest
still fresh, will back the proposal in overwhelming numbers.

“I don’t know who can oppose this. This is common sense,” he said.
“We need businesses to survive, but we don’t need criminals running
them.”

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Wouldn’t it be great if we could hold all corporations accountable for the damage done in the name of profit? How many lives have been cut short by Zyprexa and other mis-used neuroleptics while Big Pharm reaps billions?