News Flash: Company Execs Aren’t All Crooks

This WILL be news to commenter “darrian nayz,” who wrote this in reaction to my post on the indictment of law firm Milberg Weiss and two of its partners:

Listen up blowhard! These are ALLEGATIONS! It appears that this is truly “a partisan attack by a Republican U.S. administration trying to do in court what it could not accomplish in Congress with class action reform proposals.” The reason why most (sane) people think that business is largely bad is because IT IS!!!!

Oooo-kay. My post makes it crystal-clear that the indictments are allegations, and that I’m not assuming guilt. It also notes, as does the article excerpted, that the investigation began in 1999, when the Department of Justice was being run by noted non-Republican Janet Reno.

But let’s get to “darrian’s” final claim, that business is (and one must assume the people that run businesses are) “largely bad.”

Since this is Sunday, maybe everyone could be a bit more charitable and open to the truth. How about it?

So let’s see what the stellar editorialists at OpinionJournal.com had to say on this topic yesterday (bolds are mine):

“Enron” has become a totemic word, a stand-in for corporate greed, deception and malfeasance. The verdicts now being considered by a jury against the company’s two former CEOs, Ken Lay and Jeffrey Skilling, won’t change that.

WorldCom’s $11 billion fraud was bigger. The self-dealing at Adelphia was more brazen. But Enron was first, and its name will forever associated both with corporate crime and the wave of new law and regulations that followed in its wake. So the eve of the Enron CEO verdicts is as good a moment as any to consider the legacy of those corporate scandals four years later, and how well our institutions have responded. Our sense is that business has done better than its government critics.

One conclusion is how exceptional those scandals have turned out to be. Far from revealing some larger cultural rot, the corruption was serious but limited to a handful of companies. Prosecutors and regulators used the political opening created by the Enron collapse to hunt for malfeasance far and wide, but the news is how little they found. Every economic boom produces scoundrels who are exposed when the tide recedes, but the vast majority of American capitalists are honest and honorable.

The public sector deserves a more mixed grade. Congress, as usual, ran off in panic and whooped through Sarbanes-Oxley, the intrusive accounting law that has cost the U.S. economy far more than predicted by its backers. Sarbox has added hundreds of billions of dollars in compliance costs, and for no clear public gain. Deloitte has estimated that the average large company has lost 70,000 man-hours to Sarbox compliance, often by its most senior managers.

….. Meanwhile, the cost of Sarbox has also created a political backlash that is causing Congress and the SEC to reconsider some of its terms. This week, Chairman Christopher Cox announced that the Securities and Exchange Commission would take steps to make the application of Sarbox more flexible and thus less costly. (Not enough, a subject of a later post this week. — Ed.) Congress may also get into revising the act next year, after its two principal authors, Democrat Paul Sarbanes and Republican Michael Oxley, have retired.

….. WorldCom CEO Bernie Ebbers was sentenced to 25 years, a conviction he intends to appeal. Eighty-year-old John Rigas of Adelphia got 15 years, effectively a life sentence, for his self-dealing at the company he founded. His 49-year-old son Timothy Rigas got 20 years. Tyco’s two top former officials could serve 25 years in jail. These individual prosecutions are likely to be a far greater deterrent to potential offenders than anything in Sarbanes-Oxley.

….. The collapse of Enron was a debacle. Thousands of people lost their jobs and some their life savings. Regarding Messrs. Lay and Skilling, the wheels of justice have taken four years to turn. But they–and the people–have now had their day in court. It will take far longer to undo the regulatory and legal excesses that the post-Enron political panic sparked.

It would be nice if “darrian” and those who bash “evil corporations” would acknowledge the record cited here, and the thousands of public companies that have survived Sarbox’s anal exams without any evidence of rampant criminality, and consider revising their assessment.

Perhaps the business press might also move off of its “business bad” mindset, cited by John Stossel in my Monday AM-Coffee post. Nah — that’s hoping for too much.

What “darrian” and the antagonistic business media should really be doing is redirecting a large portion of their hostility towards several notable entities that either have been unable to get their books in order or have yet to comply with Sarbox:

• The Internal Revenue Service — “IRS Stands for “Internal Reviews Stink” (and a Solution They’ll Never Accept).” The same people that expect us to save every receipt have horribly lax internal controls.
• The entire US government — “GAO: Uncle Sam’s Financial Statements and Controls Can’t Be Relied on for 9th Straight Year; Media Not Interested.” This crosses administrations of both parties and is a national disgrace; more is here.
• The European Union, whose books have been out of whack (or in what the BBC described as “chaos”) for 11 years.
• Implicitly government-backed mortgage giants Freddie Mac and Fannie Mae, who, among other things, can’t tell us what’s in their mortgage portfolios. Recent Fannie Mae turbulence is covered here.

If a publicly-held company’s books were in as bad a shape as the ones just listed, you could describe that company’s situation in two words — shut down.

How many years in a row will the entities just listed have serious financial reporting and control problems before everyday people and the media consider calling them “largely bad”?

I’d also be interested in “darrian’s” reaction to this question: “What should we do about all those investment bankers and stockbrokers who pumped up the stocks of dot-com companies that they knew had barely more than a prayer of succeeding, and who helped millions of investors lose hundreds of billions of dollars when the dot-com bubble burst?” (Since it’s Sunday, I will merely point out and not dwell on the fact that the investment-banking profession, the stock-brokerage community, and dot-com company managements have [or had, in the case of the dead dot-coms] relatively high concentrations of Democrats and liberals, all of whom have apparently escaped any calls for accountability.)