Corporate Oversight: A Call For Stricter Rules
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Could a cataclysmic corporate collapse on par with the Enron disaster happen in high-tech? You bet.
If investors and the general public are to learn anything from the Enron unraveling it is that money has the potential to corrupt about 99 percent of the population, and something drastic needs to be done about corporate governance and oversight.
Business journalists have always laughed at the so-called audit statements that come with the annual reports of all publicly traded companies. Should we be surprised that investigators claim Enron's auditor, Arthur Andersen, knew about at least some of the accounting problems at the company for many months but didn't blow the whistle? Could we really expect the accounting company to publicly state something, knowing it could be fired?
This is a huge issue both for employees at companies like Enron who have much of their retirement investments tied up in company stock, and for anyone investing in the public markets.
But accounting policies aren't the only area that should be scrutinized.
Why is Walter B. Hewlett, son of Hewlett-Packard cofounder William R. Hewlett, such an anomaly as he stands up and publicly disagrees with the rest of HP's board of directors and senior management concerning the planned merger with Compaq? It's because in most cases board members are handpicked by the CEO of a corporation and then paid a fat fee enriched with stock options. In addition, there is the old 'you sit on my board and I'll sit on your board' scenario. What's the incentive to rock the boat? Why disagree when it likely will mean you will lose your seat, the money and stock that come with it,and you will be tagged as someone no other company should invite to sit on its board?
Only in a case like Hewlett's,where he has so much independent wealth and a personal attachment to the company that bears his father's name,is it remotely likely that someone would stand up and disagree.
There also are far too many boards of directors that allow a single individual to hold the CEO, president and chairman positions simultaneously. Ben Rosen fought this policy for years at Compaq and elsewhere, but he succumbed to the practice shortly after hiring Michael Capellas as Compaq's CEO.
'There is far too much you scratch my back and I'll scratch yours happening in corporate goverance of public companies.'
In the case of Enron, the issues surround general accepted accounting principles (GAAP) and the independence of the Financial Accounting Standards Board. FASB is a private-sector body. There are some that argue FASB is part of the problem because corporations and their auditors are too involved in the accounting rule-making process. If the government had more involvement in the rule-making process, there is at least a lesser chance for conflicts of interest. These are complex problems that ultimately can be fixed only by government intervention.
Unfortunately, the media, myself included, have never focused on these issues enough and raised the visibility in such a way as to expose potential problems and bring about change.
The Enron disaster and the fact that so much money has been lost may be enough to force changes in the auditing and oversight processes.
But will it be enough to prompt a closer look at corporate governance? I doubt it. There are far too many conflicts of interest surrounding all this, in my opinion. Any company that wants to take investors' money through the public markets ought to conform to a method of governance and oversight that is not riddled with the conflicts of interest inherent in business today.
Make something happen. I can be reached at (516) 562-7812 or via e-mail at rfaletra @cmp.com.