Good morning, Mr. Chairman, my name is Damon Silvers, and I am an Associate General Counsel of the American Federation of Labor and Congress of Industrial Organizations. The AFL-CIO believes today's hearing on corporate governance in the aftermath of the collapse of Enron and similar events at companies like Waste Management and Global Crossing is an essential part of a much needed effort at comprehensive reform of the capital markets.

Corporate governance is a web of relationships. These relationships should work toward getting companies to make smart, long term focused decisions that lead to sustainable benefits to all who participate in the company. Unfortunately, Enron is a window into a set of pervasive conflicts of interest that defeat the purposes of corporate governance and threaten the retirement security of America's working families. At Enron the management, the board of directors, the outside auditors and the Wall Street analysts all failed to protect investors. And similar events have both preceeded and accompanied Enron's collapse at Global Crossing, Cendant, Waste Management, McKesson and more. The source of these failures lie in the unregulated conflicts of interest that permeate the relationships between the management of these companies and the people who were supposed to be protecting investors.

The AFL-CIO's 62 member unions and their 13 million members urge that this Committee take up the task of crafting comprehensive legislation to take on the conflicts of interest in the capital markets and in the board rooms of America's public companies. You have heard in prior hearings from those who have benefited and continue to benefit from these conflicts as to why they must be allowed to continue, from those who would lull you to sleep with the lullaby that everything will be alright if you just do nothing. That may be the view from K Street, but it is not how things look for thousands of working families in Houston and Portland, Oregon and Rochester, New York who have lost their retirement savings and in some cases their jobs and their health care because they believed what they were told -- by their employers, their employers' accountants and the analysts that interpreted the accountants' numbers.

Let me then address what a comprehensive reform package requires.

Corporate governance starts with boards of directors. Public company boards need strong independent directors who are accountable to investors. Part of the problem at Enron was that Enron touted directors as independent who really had significant ties to Enron management, ties that Enron did not have to disclose. So investors first need complete disclosure of all ties between board members, the company and company management. Then this Committee should encourage the NASD and the New York Stock Exchange to require that this higher standard of independence be the relevant standard for measuring the independence of auditor and compensation committees.

With genuine independence from management must come genuine accountability to shareholders. Shareholders should have access to management's proxy, not just for shareholder proposals on a handful of subjects, but for director candidates that a substantial number of shareholders want to see on the board of the company they invest in. Investors also deserve the right to bring before the annual meeting through management's proxy any proposal that is legal and can be shown to enjoy significant shareholder support.

The second area in need of reform is the practice of public accounting. There are three issues here -- independence, oversight, and the process by which the accounting rules are made. On independence, the simple fact is that you cannot be a public auditor with an obligation to get the numbers right for a public audience and also be a consultant whose aim is to advise executives on how to optimize the numbers. The tension between those goals is too severe and the rewards for compromising the public audit responsibility are too great. It's just too easy for an auditor seeking to blend those roles to end up like Arthur Andersen at Enron, structuring SPE's as a consultant and auditing those same structures as an auditor.

The Big Five now to be arguing that if they can't earn the big money as consultants they won't be able to attract top people. From an investor perspective, we would say the opposite is true-- that unless audit and consulting functions are separated, the Big Five will not be able to attract anyone with any integrity to their audit practices, and integrity is what worker funds want in an auditor.

The next issue after independence is oversight. Former SEC Chair Arthur Levitt has outlined what we believe are the key characteristics of an much needed auditor oversight body -- members independent of the Big Five, full investigative and disciplinary powers, and independent funding.

Finally, there is the rulemaking process. Anyone familiar with the political pressures brought to bear on FASB around accounting for executive stock options in the mid-1990's, not to mention the decade long paralysis on SPE accounting knows that FASB is too open to pressures from issuers and those beholden to issuers. Here there are a variety of options available for how to make FASB more independent -- ranging from merging with a public auditor oversight body to closer ties with the SEC.

Then there are the Wall Street analysts. These people play a vital role in our markets-- they interpret the numbers. But analysts have become captive to the investment banking side of their firms. That's why part of a comprehensive package of reforms would be a provision banning basing analyst compenasation not just on specific investment banking transactions, but also barring tieing analyst compensation to investment banking performance generally.

Finally, I want to address the ultimate accountability measures available to shareholders -- recourse to the courts. The AFL-CIO and worker funds view litigation as part of a continuum of tactics for holding the management of the companies we invest in accountable and for recovering money fraudently taken from us. As such, we strongly believe that the current immunity from civil suits in the law for those who aid and abet securities fraud is outrageous -- and directly connected to the rise in accounting restatements and accounting fraud since the Central Bank of Denver case in 1994. We also support a number of other reforms in the area of securities litigation, such as a restoration of the doctrine of joint and several liability in private securities cases and the extension of the statute of limitations in securities cases beyond its current 3 years.

Together, these measures constitute a comprehensive approach to the problems presented by Enron and similar companies. This approach is in great measure embodied in the House in bills introduced by Representatives La Falce and Dingell. Here in the Senate Senator Leahy and Majority Leader Daschle have introduced a positive bill on litigation, as is Senators Dodd and Corzine on accountants. But there is a need for a comprehensive approach here in the Senate, one we hope this Committe will provide.

In closing, I wish to strongly emphasize the labor movement does not view what happened at Enron as the product of a few bad people at Enron or any other company, for that matter. While those individuals who have been given the responsibility to manage workers' and the public's money need to be held to a single high standard, we see believe at the heart of what happened at Enron are systemic problems that need systemic solutions. These solutions will offend powerful interests, but they will protect America's working families. The AFL-CIO welcomes the opportunity to continue to work with the the Banking Committee as you take up this challenge.

Thank you.