Proposes Tough Law on Executive Accountability
By Dan Frosch
New York Times
Tuesday, April 1, 2008
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
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
Last April, a jury in
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.”