Politics & Policy

Self-Destructive Behavior

Union vs. MCI/WorldCom.

Fewer and fewer American workers these days are choosing union membership, largely because unions increasingly have become channels of left-wing activism. The latest evidence is the Communications Workers of America (CWA), which is demanding that MCI/WorldCom be liquidated.

Yes, you read it correctly: A union that purportedly represents communications workers wants to destroy a telecommunications company that employs about 60,000 workers!

CWA president Morton Bahr concluded a recent press conference with the suggestion: “WorldCom should be broken up, and its valuable components like UUNet and MCI spun off or sold to responsible corporations.”

The suggestion that the valuable components be sold off to Baby Bell companies comes as no surprise, as CWA represents Baby Bell employees nationwide. It also is not a coincidence that the union has had limited success in dragging MCI employees into the union. Who can blame them? They know that uncompetitive union contracts will make it more difficult for MCI to regain profitability.

CWA, of course, is pretending that it is not trying to feather its own nest, arguing that MCI should be liquidated because former executives engaged in criminal and unethical behavior. The truth is that a few executives committed fraud — not an entire company. MCI/WorldCom itself discovered the wrongdoing and is cooperating in the prosecution.

“The illegal acts were committed by individuals,” said MCI general counsel Michael H. Salsbury. “And those individuals have been separated from the company. The bankruptcy laws favor reorganization because it is better for the economy. People don’t lose their jobs, and customers don’t lose their service. We believed right from the beginning that we should cooperate. We have cooperated more than any other company in that situation. Further, the SEC has gone to tremendous lengths in this case.”

Indeed, MCI/WorldCom was fined $500 million — the highest fine ever handed down by the Securities and Exchange Commission. If this is a “slap on the wrist,” one can only imagine what would satisfy the bosses at CWA: Public executions of MCI shareholders?

The government should punish people who commit crimes, not entire companies. Punishing companies — perhaps even driving them out of business — simply has the perverse effect of penalizing innocent parties, such as workers and shareholders. Fortune magazine’s Geoffrey Colvin obtained an internal Justice Department memo written in January by deputy attorney general Larry D. Thompson spelling out the rationale for being tough with individuals who commit crimes rather than the companies that employ them: “Because a corporation can act only through individuals, imposition of individual criminal liability may provide the strongest deterrent against future corporate wrongdoing.”

Hopefully, the DOJ has learned a lesson from last year’s prosecution of Arthur Andersen, the Enron accounting firm. After DOJ won the case against Arthur Andersen, the company struggled, thousands of employees lost their jobs, and innocent people with no knowledge of the criminal deception lost their investments.

Interestingly, some of MCI’s competitors are siding with the union. But this is a short-sighted approach. After all, a government that is powerful enough to hobble a competitor is powerful enough to cripple all businesses. There is ample reason to limit government power over private business. The last thing America needs is to become a high-tax welfare state like France, where business leaders concentrate on getting government favors instead of providing goods and services that consumers want.

An attack on MCI might make sense if WorldCom were still being run by the old crew, or if there were no internal commitment to operate in a proper and legal fashion. But this is not the case. The government-appointed monitor who is overseeing the MCI case agrees: Richard Breeden, a former SEC chairman, told the Wall Street Journal that the company has cooperated with numerous investigations under way and cleaned house. Mr. Breeden said critics seeking to liquidate the company are making a “ludicrous argument. Since sometime in the 1880s, the bankruptcy law has consistently supported reorganization of individuals and companies. The test should be a market test of whether the creditors would receive more from the liquidation than reorganization. This is not a decision left to competitors.”

Andrew F. Quinlan is the president and CEO of the Center for Freedom and Prosperity. The Center just released a study, entitled “Markets, Morality, and Corporate Governance: A Look Behind the Scandals,” showing that corporate scandals often are the result of misguided government policies.


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