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Tainted Corporations Sing the Blues
Published on Wednesday, June 12, 2002 in the Toronto Star
Tainted Corporations Sing the Blues
by Richard Gwyn

A CURIOUS SOUND has been emerging from corporate boardrooms in the past few weeks. It's the sound, loud, insistent and high-pitched, of whining.

"This cynicism about business has gone beyond reasonable questioning and threatens to be destructive," Stanley O'Neil, co-head of the investment firm, Merrill Lynch, said the other day.

"Never in my memory has business been in such low repute," intoned Hank Paulsen, CEO of Goldman Sachs while making an unprecedented appearance before journalists.

The Economist magazine, in a cover story titled "The Wickedness of Wall Street," started out by admitting that there actually had been a fair amount of wickedness personal greed, lousy accounts and inadequate surveillance" and then went on to worry about a possible "regulatory overreaction".

In fact, the prospects for any regulatory reaction at all, let alone of the U.S. government and its agencies starting to boss corporations about like a nanny, are remote.

Start with the fact that the Bush administration is the most pro-corporate in modern history. Move immediately to the fact that corporations provide both parties and most elected American politicians with their mother's milk of campaign funds.

Those two factors, plus some lesser ones such as the American public's laser-like focus on the war on terror, and that the principal watchdog of the Securities Exchange Commission is President George Bush's handpicked choice. Harvey Pitt made his fame and fortune defending corporations against the same SEC and any regulatory agencies and it's no surprise that Congress-watchers no longer expect any legislative reforms at all, or, at best, minimal ones.

So why are so many suits worrying and complaining?

Paulsen's decision to come down from his Goldman Sachs tower to try to compete in the marketplace of ideas is the best indicator of what's going on.

Corporations are hurting financially these days. There are the outright scandals like Enron and Tyco and Global Crossing and Andersen Accounting the list keeps getting longer by the week.

Even more sober companies are trying to cope with too many expensive acquisitions made during the years of "irrational exuberance" and the consequent excess of debt. General Electric, for example, is so deeply in debt that the dread word "default" is beginning to be used.

There's the more serious hurt investors have stopped investing, in equities at least. Although the economy is going up, the stock market is going down, most recently to a new post-Sept. 11 low.

The cause is mistrust in corporate accounting affecting even blue chip companies such as Xerox and GE. And with good reason: "Restatement" of corporate earnings, or admissions by their auditors of major mistakes in their accounts, tripled in 2000, the last year for which figures are available.

It is the "cynicism" about corporations, to quote O'Neil, that is the real source of the hurt in the boardrooms.

The notion that corporations were responsible for the booming economy of the '90s is now in doubt. The presumed improvement in productivity that was supposed to be the great achievement of the so-called New Economy is in doubt because it's now clear so much was caused by dodgy accounting. The New York Times has just compared the Internet, which was supposed to be creating a New Paradigm, unkindly to "Florida real estate." (In fact, pornography and gambling have been about the only commercial successes of the Internet.)

The one clear contribution of corporations turns out to have been to themselves, or, more exactly, to their CEOs and top executives.

One reasonably typical example: While the shares of SBC, a large Southern telecommunications company, have gone down in each of the last three years, the pay package of its CEO has gone up in each of these years, to $82 million last year.

Getting fired is now usually a bonus. The CEO of Dynergy walked off with $33 million after his board eventually nerved itself to dismiss him. Anyway, many CEOs have rewritten their contracts so they can only be fired for unimaginable behavior like "willful gross misconduct," and then only when the company itself is harmed.

So cynicism is inevitable, and justified.

Keeping out of the hands of government will be a snap. Regaining the public's respect and trust will be much harder. Whining isn't going to do the trick, but it's all, so far, that the suits have been able to think of as a response.

Copyright 1996-2002. Toronto Star Newspapers Limited


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