How difficult is an objective and competent audit of a large corporation like Enron or WorldCom?
Is it that hard to examine Capital Expenditure?
The failure of most of the top 9 ideas to put a halt to the problem is a good reason to come up with another plan. Sure, a new form of Band-Aid might work for a while, but if you want to implement permanent changes, I think you need to alter the motivations of the individuals that make up these organizations. I’d be more impressed with your carping if you had managed to come up with a single plausible scheme of your own, but so far your only contribution has been to vehemently disavow the idea that members of an organization bear any responsibility for the actions taken in the name of that organization. That’s your honest opinion. In my honest opinion, your attitude sucks, and the popularity of your attitude in the corporate world is one of the root causes of the continuing plague of scandal and corruption. Again IMHO, to make corporate america a healthier place, you need to change your attitude.
If you’ve got any insight into how such a shift in attitude might be accomplished, or a plan whereby such a radical approach can be avoided, bring it in for examination. If, as I suspect, you do not, kindly stop polluting this interesting thread with reactionary drivel.
That’s misrepresenting the facts. Nobody has denied people should bear any responsibility. We’ve pointed out that it’s unrealistic and impractical to expect every employee to have the time, expertise and access to know what’s going on. If you can’t see the flaws in your own plan then labelling your critics as providing only ‘reactionary drivel’ is intellectually dishonest.
And, by the way, this is a debate. If your ideas are unworkable, that’s your problem. It doesn’t logically follow that we have to suggest something better.
Does anybody else find the squink plan unsettlingly like the Hitlers youth plan where the children were encougaged to find any signs of deviance from govt policy from their parents?
Anyway, the plan wont work simply because it is STILL in the best interest of the employee to keep quiet. Since there are only going to be a few select group f upper management who are going to be in on the deal anyway, anybody new that finds out either has the option of ratting and losing everything or joining the conspiracy and gaining many millions.
Yes, and by making that self-evident statement over and over you’ve tried to promote the idea that there is no feasible way to increase the commitment of individual employees to the integrity of the corporation. If you’d bother to read my initial post, you’ll see that I labeled the idea as the radical plan it is. It’s not particularly well fleshed out, but since it is intended to act on the root cause of the problem, it does serve to point out aspects of the problem that aren’t addressed by flowbark’s initial list of possibilities.
Since msmith537 is incapable of doing anything but defending the status quo, it’s perfectly correct to label her positions reactionary. Check the dictionary yourself if you doubt me. She has yet to produce any plan that even rises to the level of being ludicrous. That’s pretty pathetic given her pretensions of capitalist wisdom.
No, corporate dishonesty is everyone’s problem. It follows logically that if no one can come up with a solution to the problem, we will all continue to suffer from its effects. What part of finding a solution does your shouting down of new possibilities play ? I guess it does help ensure that no one will ever speak up with a workable plan. Well done :rolleyes:
Well Squink does for one, but depending on implementation details it could also be a benign way of encouraging employees to take action against whatever corruption they do come across. How scary is that ?
That’d be true if a large problem were uncovered, but for day-to-day issues, it’d be more to the employees advantage to ensure that everyone that they work with has high ethical standards. No one would have to take late night accounting classes to accomplish this, they’d just need to open their eyes a bit, and perhaps occasionally act on what they see. That’s hardly the crushing burden mssmith et. al. claim. However, such a shift in atmosphere would make it far tougher to get away with the major criminal acts that could trigger corporate dissolution.
Strengthening shareholder oversight (Flowbark’s 9) might similarly discourage unethical behavior at the upper exec level, but with that plan you end up with a complicated new bureaucracy that discourages investors. Plus, that plan still fails to resolve the conflict between investors maximizing profits and promoting on ethical leadership. Despite it being a ludicrous crock ( 
sorry flowbark ), if (9) were implemented carefully it might help matters. If not, it’d be just another case of the fox watching the hen house.
I’ve done no such thing, and you’d be hard pressed to prove otherwise. I pointed out a perfectly valid flaw in your plan, which was too generalised to address the size and complexity of fraud. That is absolutely not the same thing as rejecting an increase in the commitment of individual employees. You still haven’t said how individual employees can gain the skill, time or access to information to do more than they can do now.
No, no… Squink’s idea is excellent! It just wasn’t carried far enough. It has the potential to fix all of our problems. For example:
We can fix corruption in government. My suggestion: If a senator is found guilty of corruption, everyone in his state should be rounded up and shot. After all, they elected him. A much stronger case can be made for the responsibility of the voters who elect some one than for the responsibility of a worker who just happens to be employed in the same company as a crook.
If that’s too extreme, how about that state loses its representation? Then everyone else can vote to make it the next toxic waste dumping ground. Seems fair to me.
We can fix crime this way, too. If my neighbor is arrested for a crime, my house should be bulldozed. After all, wasn’t I in the best position to notice that my neighbor was untrustworthy?
Just think: If we did that, we could set up a society where everyone watches everyone else. This new model of ‘communal responsibility for the behaviour of everyone else’ can make the world a new place!
There you go. It wasn’t even all that hard to say was it ?
No matter what’s done, some group has got to have increased responsibility for, and oversight of, corporate ethics. The possible choices include the government, bankers and the accounting profession, upper management, the stockholders or the workers. Given the conflicts of interest inherent to each of these groups, it’s foolish to ignore the group with perhaps the largest stake in long term corporate stability; the workers.
If you want to REALLY assign blame (not in a legal sense, but in a, “They weren’t doing their job” sense), look no further than the financial press, and the large institutional investors. The financial press dropped the ball on this, big time. The warning signs have been there for a long time. The financial press blew it.
So did the institutional investors. These large organizations are supposed to do research. They are responsible for their client’s money, and should follow due diligence when deciding to put huge chunks of it into corporations. They also blew it.
The employees of the company in general had absolutely nothing to do with anything.
Squink, you are a high school kid working for a corporate (non-franchise) run McDonalds. Please explain, even in general terms, how such an employee (and there are such employees, I doubt you’ll be eschewing that) can be expected to do anything remotely close to your suggestion.
That is all we ask.
Oh, corporate headquarters are in Illinois, and the employee in question is in, say, Indianapolis.
Absolutely. But that’s not what you initially said. Quotes like:
…seem to suggest that every single employee should be held responsible if their company is involved in fraudulent activities. Do you agree that the initial phrasing of your suggestion is unworkable, since it demands more time, access and understanding than the vast majority of employees have? I don’t know what you do for a living, but how often do you get to check your manager’s work for accidental or deliberate errors? I’ve never worked for a company where I had full access or oversight for anyone more senior than me.
Sorry msmith, Sam, and Eris but I’m invoking Godwin’s law: you guys have automatically lost the debate. Victory goes to Squink, by default.
BWA-HA-HA-HA… heh.
Um, Shalm: If you report on law-breaking within an organization, that is called “whistleblowing”. It’s generally thought to be a good thing, unless you are a Mafia don.
Incredibly, I don’t equate US law with Nazi govt. policy. Furthermore, I don’t equate a child’s report on his or her family’s political beliefs to an employee’s report on Corporate malfeasance to either shareholders or government regulators. Imagine that.
While the question of whether the janitorial staff is best qualified to curb malfeasance in the accounting department is indeed interesting, I hope to present a few other points in the near future.
Godwins law??! Drats! Foiled again!!
I imagine that is is very tedious and time consuming since it takes several dozen CPAs months of 16 hour days. Accountants can only validate that the bookkeeping follows the accepted GAAP rules. It can be difficult sometimes to find fraud if its well hidden.
That is not what I am saying. I believe that employees should be held responsible for their actions. I don’t belive that someone separated from the decision making by five layers of management should have be punished because of those decisions.
The entire point of putting a stop to Enron style corruption is to protect the ordinary employees. No one would care about what those executives did if it didn’t result in running the company into the ground and leaving thousands of employees jobless and without retirement benefits. You ingenious plan just speeds the process along and garentees ALL employees, sharholders and other interested parties end up with nothing.
And you know what the problem with corporate America is? People. People are greedy, selfish, gullible and self centered. People allow themselves to belive what they want to believe. When times are good like during the Internet boom, no one cares where the money comes from. The signs of Enron were there all along, people just chose to ignore them.
And my name is M Smith, not MS Smith and I am not a women. Kindly do not refer to me using feminine pronouns.
No Crusoe, I’m sure underlings will never get full disclosure from their bosses. That’d be a horrible way to do things anyway. However, simply formalizing the loss of jobs, funds and corporate identity associated with multibillion dollar fraud would serve to focus all employees, stockholders, lenders, customers etc. on the importance of knowing enough to be sure that they are dealing with a clean organization. The uproar here over increased responsibility for individual employees has somewhat masked the fact that the plan would also cause these non-employee groups to have a greater concern for corporate honesty. That could be a good thing, no ?
Regardless, let’s move on. Flowbark wants to present a few other points, and that’ll be tough with a side issue taking up space like this.
msmith claims, “Most of your top 9 ideas have already been implemented in some form or another with varying degrees of success.”
That’s not my impression. But we’ll see.
IMHO, this thread represents one of the 2 great issues of the day. (The other concerns the proper balancing of security and freedom within a technological civilization with declining costs of mayhem production).
Alas, this thread also addresses a mind-numbingly TECHNICAL and BORING subject. The media recognizes that, so it invariably reports this story with the hook of either a particular corrupt company or a particularly loud-mouthed politician.
The status of accounting reform
- Under current tax law, companies can cut their taxes by about half by relocating their paper headquarters to various tropical islands. Of course, their executives and staff can remain in the US.
Sarbanes (next week?) hopes to close this loophole and is encountering resistance from the Treasury department as well as various Republican Congressmen, IIRC. As of 6/17, Republican leaders were using procedural tactics such as walking out of committee hearings so that no vote would come to pass.
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GWB has opposed treating stock options as expenses, parting company with Alan Greenspan and Warren Buffet. (Idea #2, OP)
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Legislative efforts concern setting up an auditor’s oversight board attached to the SEC. Sarbanes (D) of Maryland restricts the sort of work that auditors can do more than Bush admin proposals do (Idea #6, OP).
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LaFalce (D) has offered an amendment (WSJ 4/12) requiring companies to switch accountants after 4 years. Lafalce would also restrict auditors from being employed by their client for 2 years.
Most Democratic amendments were defeated along party lines in the house. (Idea #3, OP)
- Numbers 7-9 in the OP are not discussed publicly.
To conclude, there are plenty of contentious felt-hat issues to be debated here. The drabber reform proposals that I listed were advocated by Dems and opposed by Reps. The more aggressive measures are not discussed.
- To be fair, Harvey Pitt of the SEC has his own ideas. a) He is requiring senior executives to sign off on the accounting statements, thereby making them liable for negligence. Nice idea, IMHO.
6b) In practice, Pitt seems to advocate giving the SEC a lot of power to oversee auditors. So he may not oppose some of the Democrat’s proposals in practice (though he may not want to see them mandated). It isn’t clear to me.
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Many maintain that a key issue involves the budget that the SEC is granted.
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GOOD NEWS: There are an abundance of cranky proposals floating around, if you know where to look. One Warren Miller, energetic reader of the WSJ advocates the following:
a) eliminating stock options,
b) enforcing mandatory term limits on CEOs and
c) “Institute capital punishment for CEOs, auditors, stock analysts, investment bankers, and securities lawyers. Bring back shame to this society. Those who ruin lives, humiliate their families, steal from the elderly, and enrich themselves while impoverishing their employees should forfeit their own lives. I doubt that capital punishment is a deterrent for a black kid in a ghetto with no family, no education, and no hope. But I’ll guarantee you that if we fry an MBA, a CPA, a JD, or a CEO every five years or so, this will stop on a dime.”
For myself, I find a nice cup of tea to be very relaxing.
From this week’s Economist:
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Radical idea: CFOs should have training in accounting. During the 1990s CFOs became Very Important Strategic Planners as well as glad-handlers for investors; such trivial tasks as understanding the books were handed off to subordinates.
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Audit committees should hold some meetings without executives present. They should have some say on the hiring and firing of the CFO, rather than having the latter serve at the CEO’s pleasure.
I’m siding with Squink. I have worked for major corporations. Crusoe’s and msmith’s objections, while on the surface reasonable, actually are part of the “common sense” that allows companies to get away with murder.
While it’s absolutely true that a mailroom clerk won’t have much insight into corporate finances, there are plenty of other employees who understand basic economics, and can spot creative lying when they see it.
To avoid hurting innocent people, including a vice president who I know and respect, I won’t state the name of a major company that I worked for recently that went broke. It took about a 7th grade education to look at their annual balance sheet and have qualms. Millions of dollars in assets that were marked “goodwill”. WTF is that? I asked our division manager. An honest guy. It was completely clear that somebody was making something out of whole cloth. Did I blow the whistle? No way. I thought I was going to be rich. We had a good business, even if some accountants were indulging in personal fantasies.
But if I’d thought I could stop the lying, with the support of the law, I certainly would have done it.
I feel I ought to clarify my position on this.
I’m well aware that something needs to be done to increase shareholder, and general public, confidence in the management of large companies and in the accuracy of their financial statements. No argument from me there.
However, I believe that change needs to come primarily in the form of tightened regulations on how to account for the various complex instruments that seem inevitably to lead to confusion, and in formalised punishments for those involved in signing such statements (whether it’s the CFO or the audit partner and manager). I disagree vehemently with holding those at a lower level directly responsible and threatening draconian punishments. Even in an audit team, the individual members do not have access to the information needed to spot fraud. People get delegated tasks; they don’t have the time, access or often expertise to spot very complex fraud. I don’t see how threatening job loss to 80,000 people will necessarily do anything at all to prevent fraud or bad accounting by 5 or 10 people. It will destroy auditing firms (I wouldn’t work for one if I knew one slip-up by someone in, say, Chicago would cost me my job in London) and is grossly unfair on those who have no involvement at all – whether it’s support staff or even staff on other projects and clients.
Instead, as well as increased regulatory involvement, I’d support mandatory rotation of auditors every year, a split between audit and consulting departments, and quarterly formal peer reviews of a large sample of audit work papers by another firm. To make that more convincing I’d also ensure that the audit partner and managers from the review firm are also held responsible; if they sign off a review of an audit of a company that goes under, they should be legally accountable too as well as the original audit partner and manager. Staff below manager level don’t get a say in which clients they work on, what tasks they do or how they approach the work (although they are expected to follow their training primarily), so unless they were directly involved in hiding, destroying, ignoring or altering particular evidence I’m not sure that holding them responsible would stand up in a court of law.