Address On Corporate Responsibility

Remarks as Prepared for Delivery

It is a pleasure to be here at the Manchester Rotary Club. It's an honor to spend this time with so many local business and community leaders. The work you do every day-both on the job and volunteering your time to strengthen this great city-are principles I want to highlight and speak about today.

We all know the Rotary Club's symbol-that yellow and blue gearwheel. We see it tacked up next to street signs, in town centers, and outside Halls like yours. The people of New Hampshire and the people all over the world know what that symbol means. When they see it, they can rest assured that their local leaders are working together to improve the lives of their families and their communities.

Your efforts are based on a fundamental principle that has not diminished in nearly 100 years. Those great Rotary Club mottos: "He profits most who serves best." And "Service above self." And our Rotary Clubs serve as strong reminders that our businesses are not separate from our communities, but an integral part of our every day lives.

Over this past weekend, when we lined up five deep to watch the parades over the July 4th, workers and business owners didn't stand apart. We lined Main Streets all over the country and stood shoulder-to-shoulder to thank God and our forefathers for the dream we call America. In Independence Hall in 1776, they risked everything to stand for those inalienable rights that we are all born equal and that we all have the same opportunity to rise as far as our hard work and God-given potential can take us.

These are the values that unite Americans and problems arise when people forget them. Whether you are a CEO of a Fortune 500 company with hundreds of thousands of employees or the owner of a dry cleaning shop with three-we are all connected in this great experiment called America.

If any institution in America understands this idea, it's the Rotary Club. Paul Harris founded the first Rotary Club in Chicago on a simple but profound principle: that business and communities were linked-that the success of one was connected to the success of the other. Paul Harris said, "In common with my fellow members, I had learned to place emphasis on the giving rather than the getting."

In these times, when insider schemes in boardrooms and on Wall Street have dominated the headlines and undermined our economy, I think it would be wise for corporate America to heed your motto. Our economy needs a new direction. It must be guided by principles that remind every worker, small business owner, CEO, and young entrepreneur starting out-we are all connected in our vested interest to do well and to do so in a way that honors America.

As President, these fundamental values will be a part of every decision I make because they are a part of who I am and the work I've done all of my life.

My Dad worked in textile mills for over 30 years. We moved a lot in my first years, but we finally settled in Robbins, NC. We went there to build a better life for ourselves. My family bought a house. We went to public schools during the week and to Church on Sunday. And I was the first member of my family to go to college.

Both my parents worked long hours for modest wages - my Dad in the mill and my Mom in numerous jobs, the last at the post office. My parents still live in Robbins. And families are still coming to Robbins, just like my parents did, to build a better life for themselves. Hard work, faith, and family are the core principles that guide people in Robbins. They guide people in Manchester, and they should be the core principles that guide our policies in Washington.

But there are too many Americans and people in New Hampshire who are struggling. On Thursday, we learned that the unemployment rate has climbed to the highest level since April 1994. More than 9 million Americans are unemployed and New Hampshire has lost 20,000 jobs since 2000. 4.7 million Americans are working part-time but need fulltime jobs, $400 billion in retirement savings are gone, workers benefits are being cut, 2 million more Americans are living in poverty.

Now, we are seeing these problems for a lot of reasons. We've seen bad economic policies, mostly tax cuts we can't afford for people who need them least. And this Administration has tolerated bad conduct in corporate America-CEOs cooking the books and enriching themselves at the expense of their companies.

But most of all, we've seen a drift from our values. And our country is suffering because a few at the top, in Washington and in boardrooms, have decided those values just don't matter anymore.

Well, those values matter to me. That's why last month, I offered a plan that would change the tax code to reflect our values and reinvigorate our economy. Instead of valuing only wealth, as this President does, I want our tax code to value the work that creates it. It's wrong when CEOs are paying a lower tax rate on their unearned income then people who work for a living are paying on their salaries.

I proposed rescinding President Bush' tax cuts for the most fortunate and taxing the investment income of the top 1% as the same rate as the work of the middle-class. I also proposed $160 billion in middle class tax cuts, a $5,000 tax credit so more Americans can own their own homes, and new incentives for savings so working Americans can save for college, their retirement, or for their dream-like starting their own business. I want to create an America where work is rewarded and everyone has a stake. The best way to strengthen our economy in the long run is to pursue policies that honor work and enable everyone to own a piece of the rock.

Today, I want to talk about another essential aspect of our challenge—and that's to restore integrity and public confidence in our economic institutions.

The truth is, no matter what either party tells you, the greatest thing holding our economy down isn't that wealth is taxed too much or that the government spends too little. More than anything else, what's holding our economy down is the callous view of a few at the top in Washington and in the corporate world that the values that got us here can now be left behind.

American's small businesses create jobs better than any government program. Our markets allocate capital more efficiently than any bureaucrat. But when our values disappear, our country suffers. The flood of corporate scandal in these past few years has not only torn at the roots of public confidence, but washed away the financial security of millions of Americans through layoffs, bankruptcies and destroyed pensions.

Our economy, our people, and our nation have been undermined by the crony capitalists who believe that success is all about working the angles, working the phones, and rigging the game, instead of hard work, innovation and frugality.

And these manipulators find comfort in an Administration which, through its own example, seems to embrace that ethic. We will never turn this country around until we put our economy and our government back in line with our values.

While most in this room and business people across this nation work hard every day and play by the rules, too many have not. They have debased your hard work and created doubts that must be addressed if our economy is once again to prosper.

People often talk about corporate responsibility as simply an issue dealing with arcane SEC rules - but in the real world it has a real effect on people's lives. We know what Tyco or Worldcom mean. We understand that when CEO salaries increase by 3,000 percent and workers only 10 percent over the last three decades-our economy is betraying our values. And when American Airlines' CEO was demanding that pilots and flight attendants see their pensions cut at the very moment he was putting away $41 million to protect his own pension against bankruptcy-we need real pension protection.

In a moment I'll talk briefly about some of the policies I want to enact in Washington. But I think a great place to start is with your ethical guidelines—the Rotary Club's "4-Way Test."

"Of the things we think say or do: Is it the truth? Is it fair to all concerned? Will it build goodwill and better friendships? And will it be beneficial to all concerned?"

It is a timeless moral compass that I think would work wonders for a corporate community that's lost its way.

I wouldn't be surprised if those four basic questions helped steer Fraser Papers Inc. to buy the mill up in Gorham and put those workers back on the job. I was up there at the end of May and I met some of the workers who are so proud of what they do-some working in the mill for 27-30 years. I toured the mill, and it brought back a lot of memories and strengthened my belief that possibilities exist in every corner of our country. We just need more risk takers-good risk takers-who believe in equal opportunity.

We need more examples like that to show workers and average investors that honesty, integrity, and moral responsibility are still alive in the business community-and are still the best way to create jobs and economic growth. We need more Timberlands than Tycos, and we need more stories like the Gorham Mill.

And yet this President, who ought to be leading the way, has offered nothing in the way of reform. This last tax bill is a vast giveaway to all the insiders who drove our economy into the ditch. Instead of tackling wasteful tax shelters, the bill actually encourages them.

My ideas are based on principles as old as America. Corporate books should be honest. Rewards should be based on accomplishment. Executives and other insiders should be accountable. And businesses have responsibilities to their workers, not just the other way around.

That is why I proposed a Worker and Shareholder Bill of Rights, with five important steps to restore corporate responsibility.

First, we need to restore trust-trust in our markets, and trust that our political system won't stop our markets from working. That means a lot of things. The first one is this: Congress and the White House need to keep their hands out of options accounting.

Stock options have played an important role in recruiting top talent and giving them a stake. They play an important part in our economy. But I agree with Alan Greenspan, Warren Buffett, Paul Volcker, and dozens other business leaders: stock options are not free.

The abuse of stock options that are hidden from financial statements has been central to the corporate scandals. Executives and directors, awarding themselves millions of shares, then manipulating their balance sheets-and inflating stock prices-in order to cash out while their companies went down the drain.

Everyone knows the right thing to do. The Federal Accounting Standards Board has now said it plans to require expensing of options. Politics should not get in the way of this decision. This is about honest accounting. It is a fundamental tenet of economic reform. If we're going to restore values to our economy, we need to do the right thing here.

Now, stock options have played a special role in one of the most dynamic sectors of our economy, the high-tech industry. We will all be better off if we strengthen that sector by reforming our regulatory climate, intellectual property laws, and technology investments-all things I'll speak about in the coming weeks. High-tech companies have succeeded through the creativity and hard work of their people, and those virtues can be rewarded while still providing clear and reliable financial reports.

While we clean up options accounting, we also need to clean up pensions accounting. In 2001, companies reported a $54 billion gain in pension funds when in fact those funds lost $35 billion. We need to make sure companies report the true state of their pension plans to investors and workers.

Second, we need to rein in outrageous executive pay. Executives who create wealth and jobs deserve to be richly compensated. But taxpayers should not be subsidizing massive bonuses for CEOs who are driving their companies into the ditch. The law already provides that CEO pay above $1 million should not be tax-deductible unless it is performance-based. But this law has not worked, as most everyone acknowledges.

With government and business working together, we need to reform that law so it works as it was intended. And we also need more disclosure. Companies should be required to tell shareholders clearly and simply what they pay their top executives and compare it to what they pay their average worker. If the CEOs deserve the kind of pay they're getting, they should have no trouble justifying it.

Third, we need to make sure corporate directors and executives are accountable to the shareholders they work for. Corporate boards are supposed to represent shareholders, not management. But many boards today are hand-picked by management, often from the same pool of insiders. For some-not all, but some—corporate directorships have become perks to be hoarded and traded among a closed group-a nice way to pick up a few extra dollars and attend the occasional conference in the Caribbean.

So it's no surprise that these cozy insiders were asleep at the switch during the largest corporate scandals in our history.

As I have said before, I want to expand the investor class-that's one of the reasons I would cut the effective capital gains rate for 95% of Americans. But as we give more Americans the chance to own stock, we also ought to give them more of a voice in the companies they own.

The markets have made progress in improving standards for boards, and they deserve to be commended. But there is more we should do. I've proposed making sure that shareholders' nominees for corporate boards can compete with CEOs' picks on a level playing field. I also want to make sure the pension funds and mutual funds that hold most of your money are watching it carefully.

As a final step to strengthening insider accountability, we also need to put the "public" back in the initial public offerings. Wall Street bankers have been able to game the system, selling underpriced shares to friends and potential clients. We should limit these sales.

Fourth, we need to bring back a basic principle of our pension laws: pensions should be protected on the shop floor, not just the top floor.

I've proposed a Pension Parity Act with four basic ideas. We should eliminate tax breaks for executive pensions if they are disproportionately large compared to rank-and-file pensions. When companies convert to so-called "cash-balance pensions," we should require that they protect the oldest and longest-serving workers. We should forbid once and for all the kinds of bankruptcy-proof pension we saw at American Airlines. And we should eliminate abuses of pensions to evade our tax laws.

And finally, we should shut down corporate tax abuses. It is a disgrace that American companies renounce their citizenship to reduce their taxes. It's a disgrace that corporations can take out life insurance policies on their janitors, claim a huge tax deduction, and than keep the proceeds when that employee dies, rather than sharing them with his family.

Our tax code is riddled with such loopholes, which waste our money and offend our values. This President has had several opportunities to close these very loopholes and he hasn't. I will.

But that is only the beginning. One of the biggest problems with tax shelters is that they're hidden.

We should bring them into the light by making corporations explain why they give investors one number for their profits and the IRS another.

We should stop tax advisors and tax lawyers from making millions by giving bogus advice. And we should give the IRS the resources it needs to crack down on tax fraud.

I don't believe our values are a luxury of economic growth. I believe they are the engine of economic growth. Books that are honest, executives who are responsible, and employees who work hard for fair wages are essential to our economy. I would sign the Worker and Shareholders Bill of Rights into law in a heart beat because it will restore our economy's great capitalist rhythm: creating jobs, rewarding work, and building wealth the old fashion way-by earning it.

These ideas are not as eloquent as the Rotary Club's "4-Way Test" but they honor the dignity that Americans bring to work every day—people like my Mom and my Dad, who worked in the mills for 35 years. These polices would protect people just like them who get up early, work all day, and arrive home at night to spend time with their children. We need economic policies in place that strengthen and protect their way of life and their jobs. And that is our shared goal, to strengthen our economy because America is at its best when it is at work.

Too often, the political debate in Washington and on the campaign trail is too much about politics and not enough about what really matters, which is real answers to solving real problems.

Over the course of my campaign, I have tried to set forth the most detailed and specific plan in this race: An economic vision that rewards work, not wealth, and that helps the middle class own a bigger piece of the rock, not a bigger share of the tax burden. An education plan that provides college for all who'll work for it and puts a good teacher in every classroom, not soaring college tuition and property tax bills in every mailbox. A plan to help parents balance work and family, by expanding after-school, not cutting it, and by giving tax cuts to new parents who need them, not rich lawyers who don't. A plan to make America safer but also more respected in the world, and to make our homeland defenses stronger, not our civil liberties weaker here at home. And in the next few weeks, I will offer my own proposal to improve a health care system that asks too little and costs too much.

This President and I do agree on one thing: this campaign should be a debate about values. We need to have that debate. We need leadership in this country that promotes the right economic values—opportunity, hard work, and achievement-over the misguided values of accounting tricks and corporate greed. The President and I come from very different backgrounds. But I still believe in America where the son of a mill worker can go toe-to-toe with the son of a President.

If I'm president, I will wake up every single day, fighting to put the interests of working Americans first. Their values are the values I was raised with, and their fight has been the cause of my life.