Ok, so Corporate America is corrupt: Now what?

Great Debates
1

In the thread Not a few bad eggs: Bogus Corporate Accounting Runs Rampant in America, we demonstrated that American capitalism is qualitatively more corrupt than it was a decade ago. Some of the attending costs to efficiency and economic growth were noted as well. (Disagree? Come join us in the aforementioned thread.)

So what’s the way forward? I hope to assemble a comprehensive list here. Additions and of course discussion is encouraged.

  1. Only a worker’s revolution can yada yada. Sorry, but I’m going for comprehensiveness.

  2. A no brainer: Modify GAAP so that stock options grants show up in the income statement and thereby affect reported earnings.

  3. Require accountants to rotate away from their client firm every 5 years.

  4. Somehow try to increase the number of big corporate accounting firms.

  5. Divest consulting departments out of accounting firms. (As always, note unintended consequences.)

  6. Allow consulting departments, but disallow their ability to work for active clients of the auditing branch.

  7. Incentive stock options are the problem: they present too great a temptation for abuse. Disengage the majority of executive pay from stock price performance: place incentive payments under the $1 million dollar tax cap. (That is, we would still allow executive compensation above $1 million, it’s just that payments above that cap would come directly out of profits and could not be deducted as expenses). Strong medicine.

  8. Do something clever with the compensation scheme. (I don’t know what this means either.)

  9. Strengthen shareholder oversight. Establish an advisory council on corporate governance, with the funding to do both basic research as well as issue comments on every proxy and election conducted by the top (um) 1000 firms. Fund them with an annual fee of (um) .01% of the value of each pension, mutual or hedge fund. Or start 3, and allow funds to direct their fee to their favorite. This would address the market failure intrinsic to equity-based forms of capitalism: minority owners lack incentive to conduct adequate oversight.

2

Eh This is telling of some corporate attitudes concerning laws protecting shareholders and the like As said by Forbes junior on his Saturday fox news show

"everytime a situation like this happens the socialists run in with all sorts of rules "

The general attitude the impending bankruptcy was the market correcting its self and people needed to stay out of the way

In the 10 minutes I could stomach it I didn’t hear about helping the people who were screwed in the deal …

Are these semitments the general feeling of most corporations?

3

(5) has happened at a number of firms, but would be difficult to mandate further. Audit fees are not high enough to encourage large firms to become audit only.

(6) is underway at most large firms already, voluntarily.

4

First, institute a relentless visibility in corporate financial activity. Everything on the public record, available without hesitation

Some form of whistleblowing law, that rewards and encourages people who rat out thier boss. If caught, the felon loses all the money. Every dime. Then he can hump his sorry ass down to Micky D’s and give us all a demonstration of boot-strap lifting.

Hang a few of them, a encourager les autres…

Oh, OK. Not really. Just a bit of sentimental nostalgia…

5

Appoint flowbark to chair S.E.C. :slight_smile:

6
  1. Death penalty for corporations that fudge their books by a billion or more.
    Sell off all the assets to the highest bidders. Anull all debts and contracts. Let the government keep the proceeds. Stockholders, management, employees get nothing.
    Yeah, it’s probably a little radical, but it’d certainly serve to keep everyone on their toes for signs of impropriety.
7

A big change in the last 20 years is the multiple of the CEO’s earnings over the earnings of the average / lowest paid worker of his company. This figure has increased from 45 to 500 (or sonmething like that).

There should be a federal law saying the CEO cannot earn more than 100 times the annualised figure of his lowest paid employee - salary, options, perks, the lot. If he wants to be a high flyer, he can drag up his workforce with him.

8

Make all corporate tax returns a matter of public record. Some nations already do. The number of regulation changes required is trivial and the ever-slathering press will seek out improprieties for free.

9

[hijack for the humor of a fake newspaper article]

(NOTE: Sent to me via e-mail without attribution and not to my knowledge copyrighted)

REMAINING U.S. CEOs MAKE A BREAK FOR IT – Band of Roving Chief Executives Spotted Miles from Mexican Border

San Antonio, Texas (UPI)-- Unwilling to wait for their eventual indictments, the 10,000 remaining CEOs of public U.S. companies made a break for it yesterday, heading for the Mexican border, plundering towns and villages along the way, and writing the entire rampage off as a marketing expense.

“They came into my home, made me pay for my own TV, then double-booked the revenues,” said Rachel Sanchez of Las Cruces, just north of El Paso. “Right in front of my daughters.”

Calling themselves the CEOnistas, the chief executives were first spotted last night along the Rio Grande River near Quemado, where they bought each of the town’s 320 residents by borrowing against pension fund gains. By late this morning, the CEOnistas had arbitrarily inflated Quemado’s population to 960, and declared a 200 percent profit for the fiscal second quarter. This morning, the outlaws bought the city of Waco, transferred its under performing areas to a private partnership, and sent a bill to California for $4.5 billion. Law enforcement officials and disgruntled shareholders riding posse were noticeably frustrated.

“First of all, they’re very hard to find because they always stand behind their numbers, and the numbers keep shifting,” said posse spokesman Dean Levitt. “And every time we yell ‘Stop in the name of the shareholders!’, they refer us to investor relations. I’ve been on the phone all damn morning.”

“YOU’LL NEVER AUDIT ME ALIVE!”

The pursuers said they have had some success, however, by preying on a common executive weakness. “Last night we caught about 24 of them by disguising one of our female officers as a CNBC anchor,” said U.S. Border Patrol spokesperson Janet Lewis. “It was like moths to a flame.”

Also, teams of agents have been using high-powered listening devices to scan the plains for telltale sounds of the CEOnistas. “Most of the time we just hear leaves rustling or cattle flicking their tails,” said Lewis, “but occasionally we’ll pick up someone saying, ‘I was totally out of the loop on that.’”

Among former and current CEOs apprehended with this method were Computer Associates’ Sanjay Kumar, Adelphia’s John Rigas, Enron’s Ken Lay, Joseph Nacchio of Qwest, Joseph Berardino of Arthur Andersen, and every Global Crossing CEO since 1997. ImClone Systems’ Sam Waksal and Dennis Kozlowski of Tyco were not allowed to join the CEOnistas as they have already been indicted.

So far, about 50 chief executives have been captured, including Martha Stewart, who was detained south of El Paso where she had cut through a barbed-wire fence at the Zaragosa border crossing off Highway 375.

“She would have gotten away, but she was stopping motorists to ask for marzipan and food coloring so she could make edible snowman place settings, using the cut pieces of wire for the arms,” said Border Patrol officer Jennette Cushing. “We put her in cell No. 7, because the morning sun really adds texture to the stucco walls.”

While some stragglers are believed to have successfully crossed into Mexico, Cushing said the bulk of the CEOnistas have holed themselves up at the Alamo. “No, not the fort, the car rental place at the airport,” she said. “They’re rotating all the tires on the minivans and accounting for each change as a sales event.”

[/hijack]

10

My suggestion? Change the rules radically every two years. It’d stifle growth a bit, but by the time CEO’s manage to find loopholes to take advantage of, they get a whole new set of rules.

11

I thought I would pick out this statement as the most ridiculous:

Xerox - 83,000 employees
WorldCom Group - 61,800
Arthur Andersen - I would guess close to 80,000 employees (pre-Enron)

So your “radical” solution is to punish tens of thousands of employees who have little or nothing to do with the executive officers of the company? That’s like the Federal government coming into your town and saying “someone broke into the Jones house across town so we are going to disband the town. Please disperse so we can bulldoze your houses and stores.”

Your “solution” would create more problems than it would solve. The wealthy executives would probably find ways of hiding their money while all the regular working stiffs would just find themselves out of a job with not pension, no stock options and probably no severance package. Serves those bastards right for working for a crook!

A corporation is not a “person”. It does not have feelings. It does not care if you fine it or even disolve it. The people working for the company do.

Why?

12

msmith357: that one’s a recurring proposal in discussions within the auditing profession. The theory is that auditors will be less than objective, even with the most stringent ‘Chinese walls’, when immensely lucrative consulting projects may be jeopardised by the audit team offering anything but an unqualified audit opinion. A secondary point is that consulting projects often implement systems or processes that are then reviewed by the audit team, with the implication that no company will find its own work to be of a poor standard.

To be fair, most big audit firms are already moving down the path towards separate audit and consulting work, because this is an obvious target for regulators. Some consulting work is inevitable, however, by virtue of the fact that audit fees don’t generate enough profit to be attractive on their own and also because the audit team is often in the best position to analyse risks and controls and recommend and implement improvements.

13

Why don’t we all send these CEOs and Accoutant firms involoved in these fiascos lovely thank you cards. We can all thank them for stealing our retirment funds and treating us like patsies and morons.

Come to think of it we can send the rest of the companies out there letters saying we’re keeping our eyes on you.
Maybe they’ll return us postcards from the Dominican Republic or some other Caribbean nation, with the phrase
“Having a lovely time. Thanks for the Cash… Glad you aren’t here”

14

Well, since greed is a natural human instinct, the fact that - while a huge market surge was taking place - several less than honest business leaders faked numbers to keep lofty and unjustifiable stock prices propped up is no surprise.

What to do about it??

Here is my answer!

NOTHING!!!

The solution is already in place. Punish the people who commit fraud by imposing huge fines and long jail sentences. In the end, the market will determine which corporations are running legitimate nuimbers and reward them with higher stock valuations and good debt ratings. When a CFO knows that if they screw with their SEC reportings that they have a 5 year stay in a federal prison, the incentive to do wrong is not so high.

Thus far, I haven’t heard of one person going to jail on charges of fraud. This is the biggest problem. I don’t think imposing further regulations on these corporations is the solution, holding them accountable is. Hundreds of people should be heading to jail after the shakeout of Worldcom, Enron, Global Crossing, etc…

To me, it is a lot like the gun control issue. The laws that are on the books currently are sufficient. They must be enforced vigilantly in order to get of the problems that they were written to solve, otherwise nothing changes.

15

How the heck does reporting stock option grants differently in any way affect the criminal fraud that has been going on?

What’s been done is already illegal. Changes in accounting rules won’t affect that. Removal of the profit motive is the only thing that will affect that. To do that, the obvious answer is:

BAN THE GOLDEN PARACHUTE.

It’s obvious that these CEOs know that they’re building a house of cards and that it’ll eventually fall in. Their hope is to maintain the house long enough to pump up their resume, get out rich and retire, and/or involve enough other people in the fraud so that their silence is worth big money.

Make a rule that disallows large payoffs, in any form, to outgoing officers. They are only to receive salary while they work for the company, and a pension plan no different than that of any other non-unionized employee (or, if the company is a full union shop, no higher than the highest union pension amongst the employees). In addition, make a rule that requires an audit of the last company or two run by an incoming CEO before he can be hired by a new company.

That oughtta sober 'em up. No more personal profit in running a company to the ground at shareholder and employee expense.

16

Little or nothing ? They’re all either willing or unwitting participants in a corporate culture that allows corruption to flourish. Since, as you say, a corporation does does not care if you fine it or even dissolve it, any attempt to change the behavior of a corporation has to focus on the behavior of individual employees. If all of the 224,000 employees at Xerox, WorldCom, and Anderson had known that they would lose their jobs if the boss was found cheating, you can bet that they’d have kept a better eye on things.

Where would these unethical wealthy executives come from if each step of hiring and the promotion ladder were monitored by people with a real stake in the integrity of the company and its employees ?

17

Unrealistic, surely. Even if all of the employees knew their jobs were at stake that doesn’t put them in a better position to spot or understand complex fraud or dodgy accounting practices. You’re holding people accountable for others’ actions that for the overwhelming part they could not possibly scrutinise.

18

True. An executive assistant is not going to know the SPE she’s processing paperwork for is illegal, or how to read the financial statements and know they’re erroneous. The people who do know are working together duping everyone else. Look at Andersen; how are people in Chicago and New York supposed to police the Houston’s office actions?

All of Andersen’s employee’s are being punished, not simply because of Enron, but because Enron was the third blow-up, showing the firm was incapable of policing itself. I feel for the employees, but I don’t think there was a better solution.

19

Possible solutions, the regular and then the fire-breathing…

1A) Add some teeth back to the watchdogs. Fire Harvey Pitt, and investigate anyone in the government regulatory system who may have ties to corporate malfeasance. A certain secretary of the army comes to mind.

And it is unimaginable to me that an SEC punishment for a crime is to bar a person from doing that crime again. Huh? This isn’t a slap on the wrist, so much as a slap at the original law…

2A) Valuate stock options – duh.

3A) Criminalize white collar crime; Our capitalist system should not be gamed; money should go to the best product, not the most unethical C.E.O. This is a subversion of our system, and should no more be allowed than people ignoring our judicial system. Would we allow crooks to fund judges and assume that ethical results would spring forth?

  1. Adjust C.E.O. pay (not what you think.) Every time profits are adjusted for prior years, bonuses earned on those profits are returned to the shareholders, from every employee that “earned” them. Needs effective prosecution.

  2. Accountants provided by neutral accounting board. Identies of company/audit crew are anonymous, and funded by a Central Accounting Board, which is in turn funded by all companies, including fees from the relevant Stock Exchanges for assuring clean books. Accountants are rotated yearly.

  3. Loans to executives of any sort are illegal! If they need a low interest loan, let them use a bank like the rest of us.

BTW, love the thread titles. -Ace

20

Yes, I’m sure the guy in the IT department who is in charge of ordering backup tapes would find the spare time to conduct background checks and independent accounting audits. :rolleyes: