Pubdate: Tue, 09 Jul 2002 Source: National Post (Canada) Copyright: 2002 Southam Inc. Contact: http://www.nationalpost.com/ Details: http://www.mapinc.org/media/286 Author: Terence Corcoran Note: Drug policy related references in first two paragraphs. THE PLAN TO REFORM CORPORATE AMERICA According to The Wall Street Journal, the following exchange took place between U.S. Treasury Secretary Paul O'Neill and President Bush. Commenting on U.S. corporate scandals, Mr. O'Neill is reported to have said: "A kid who gets caught with a half a gram of marijuana can serve more time than an executive who loses tens of thousands of jobs." To which the President is alleged to have responded: "You're right." That should do it. When Mr. Bush addresses the subject in his speech today, he will likely declare that it's time to get rid of those awful marijuana laws that are just filling U.S. jails with innocent kids. Either that or he's going to create a new corporate crime: Any executive whose company loses thousands of jobs will now get sent to jail along with the kid caught with marijuana. Anything is possible. While it may appear unseemly to trivialize serious breaches of corporate law, trivialization is the order of the day. Anyone who spent more than half an hour yesterday watching the sparring between demagogic politicians and WorldCom officials at a Congressional committee hearing would know that the business of America isn't business, it's having a political field day trashing everything that comes across one's mental screen. Accounting? "Should we have the government audit corporations?" asked a dead-serious Paul Kanjorski, a Pennsylvania Democrat, of Melvin Dick, the former Arthur Andersen partner who audited WorldCom but failed to notice that the company had capitalized US$3.8-billion in operating expenses. Bernie Ebbers and Scott Sullivan took the Fifth, leaving poor Mr. Dick and Salomon analyst Jack Grubman to field an endless series of questions designed to embarrass the witnesses and make the politicians look good. The politicians -- along with CNBC and CNN on-air bimbos -- had a particularly good time ridiculing Mr. Dick because he hadn't found out since June 25 how WorldCom's accounting "fraud" had occurred. "Aren't you there in the company?" asked one belligerent congressman of Mr. Dick, who had to reply that, no, he wasn't. Andersen no longer held the WorldCom audit, a loss Mr. Dick might have said occurred at least in part because Andersen had been driven out of the audit business by the government. But fear not. Soon America will have Congressman Kanjorski running corporate audits. Whether it comes from Congress or the Securities and Exchange Commission, it looks like the United States of America, home of the greatest economy in the world thanks to a free market corporate system, is about to start taking over the business of auditing the vehicles that created its success. No wonder investors are rushing out of equities. Who would invest in a system where every politician, bureaucrat, regulator, consultant, organization, agency chief and hog dealer on the planet has a plan to reform Corporate America that just might make it through Congress or into the President's speech. Talk about trivialization. Harvard prof Rakesh Khurana trotted out his theories about the inherent flaws in the concept of the CEO as charismatic leader. Uhh. How about Jack Welch, Warren Buffett, John Malone, Lee Iacocca, not to mention thousands of others over 100 years of successful one-man shows from Rockefeller to Henry Luce and Henry Ford to Bill Gates. The SEC wants all the remaining non-charismatic CEOs to sign documents pledging that the financial statements are free of fraud. What's fraud? Not defined, and any CEO who signs such a declaration is simply taking a gamble. There's no way a CEO can certify against fraud, especially those that get made up after the fact. Certainly no auditor would sign a statement assuring fraud-free numbers. And what about the board of directors and the board's audit committee. Reformers now insist that the audit committees of boards should be composed of outside directors who take a direct hand in audit oversight. But since that won't work -- how can outsiders be plugged into the details of the daily accounting grind and still remain outsiders -- it is now advised that the chairmen of such audit committees should be people familiar with accounting or financial management. Another bandwagon running out of horsepower is the executive stock option. Using options was one of the last great fads of the corporate reformers. We needed to "incentivize" the indolent but charismatic CEO with big perks. The idea was so hot in 1993 that the U.S. Congress passed a law that said any compensation paid to a CEO above $1-million could not be deducted as an expense -- unless that compensation was "performance based." How much of a role did that tax rule play in creating the stock option bonanza? The patently useless reform of separating the CEO from the board chair, a British invention, is now part of the U.S. reform agenda. Next thing you know the U.S. will be looking to the French model, which gives the President power to appoint CEOs. Before this onslaught of reforms, significant and trivial, the role of the U.S. President today is to bring some reality to what has become an international assault on confidence in the American corporate system. The President's speech, said White House spokesman Ari Fleischer yesterday, "is going to be aimed at restoring that confidence." If his plan includes throwing CEOs in jail for causing job losses or business failures, and other wonky ideas, it won't work. - --- MAP posted-by: Ariel