Contact Information:

Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia
22310-9998
 

CF&P Press Release,  April 10, 2003

Center for Freedom and Prosperity Foundation

For Immediate Release
Thursday, April 10, 2003
202-285-0244
 
www.freedomandprosperity.org

Study Explains that Government Intervention Undermines Sound Corporate Governance:
Markets, not regulation, best way to monitor executive behavior

April 10, 2003 (Washington, DC) The Center for Freedom and Prosperity Foundation today released a study showing that corporate scandals often are the result of misguided government policies. Andrew F. Quinlan, President of the Center for Freedom and Prosperity, remarked, "Many laws reduce incentives to use company funds in an economically efficient manner, so it should come as no surprise when company managers don't make wise choices." Quinlan added, "We should punish executives that break the law and act in an unethical fashion, but policy makers also should address the misguided laws and regulations that make bad behavior more attractive."

The report, entitled Markets, Morality, and Corporate Governance: A Look Behind the Scandals," is written by Heritage Foundation tax expert Daniel J. Mitchell. In the study, Mitchell specifically reviews how tax law, bankruptcy law, contracting law, and takeover law influence executive decision-making. Mitchell has particularly harsh words for tax policy, stating "The double-taxation of dividends undermines the incentives of both managers and investors to make good choices, which is one of the reasons why President Bush's tax plan is so desirable."

Veronique de Rugy of the Cato Institute added, "Recent corporate scandals are an important reminder that anti-takeover laws have bad consequences. They shield managers from shareholders and therefore create incentives for the misuse of company funds." Ms. de Rugy also stated, "Deregulating the market for corporate control would do wonders for corporate responsibility."

The report also argues that companies generally should not be held accountable for the unethical behavior of individuals especially when those people no longer are with the firm. According to Mitchell, "The WorldCom case is a good example of a firm that has aggressively moved to rectify its mistakes. This is something to be applauded." Quinlan echoed these sentiments, adding, "Some argue that a company should be punished because former executives made bad choices, but the market should determine whether a firm succeeds or fails."

Copies of the Study can be found on CFP Foundation's web page at:
http://www.freedomandprosperity.org/Papers/corpgov/corpgov.shtml

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-608-6224,
dan.mitchell@heritage.org
Veronique de Rugy can be reached at 202-842-0200,
vderugy@cato.org

________________________________________

The Center for Freedom and Prosperity Foundation is a nonprofit, nonpartisan public policy, research, and educational organization operating under Section 501(C)(3). The CFP Foundation is the research and educational affiliate of the Center for Freedom and Prosperity (CFP) and can be reached by calling 202-285-0244 or visiting our web site at www.freedomandprosperity.org

 

Center for Freedom and Prosperity Foundation
P.O. Box 10882
Alexandria, Virginia 22310
Phone: 202-285-0244
www.freedomandprosperity.org
cfpf@freedomandprosperity.org

 

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