Readers Report
Andersen: Who Is to Blame?
Kudos to John A. Byrne for highlighting that even good people can go astray when they have an overwhelming economic incentive to do so ("Fall from grace," Cover Story, Aug. 12). Auditors, like everyone else, respond to economic incentives. If the only thing an accounting firm rewards is revenue growth, then the partners will deliver more revenues--at the great cost of reduced audit quality.
Current efforts to reform auditing, corporate governance, and even the analyst community all seem to address this reality. In the future, we should expect to see less potential for auditor judgment being compromised by consulting fees, director diligence wavering in the face of personal economic ties to the corporation, and analyst reports being skewed by investment banking concerns.
Dana R. Hermanson
Kennesaw, Ga.
I was with Arthur Andersen LLP from 1973-79, and again from 1993-97. The difference in the firm in the 14 years was enormous. It went from the "one firm" concept of client service and professionalism to every office out for its own revenues. I'm sorry to see the original Arthur Andersen & Co. go, but the Andersen that took its place needed an incredible amount of reform.
Charles Napier
El Paso
You reported that Joseph F. Berardino's ire about the WorldCom Inc. scandal was directed at the media, which he believed was exaggerating the story. How can the press overstate accounting lies to the tune of $2.8 billion, the transfer of wealth from the investment community to insiders who sold their stock at premium prices, or the under-auditing performed by his firm? The stock price decline of WorldCom was rationally due to the reduction in the expected cash flows combined with the increased cost of capital because of the known risk of management deceptions.
J. Edward Ketz
Penn State University
University Park, Pa.
Despite Joe Berardino's "poor me" attitude, I simply can't feel sorry for him. It is extremely hard to believe that someone in his position could have no knowledge of some of the shady practices that were going on inside his company. If anything, Berardino should be accepting the brunt of the blame.
Mark Reif
Winchester, Va.
Berardino cries, "I may never work again," but he has millions he made with the firm and doesn't have to worry where his next meal is coming from. He should have to spend his retirement years working as a greeter at Wal-Mart, like the workers whose retirements were wiped out. That would be justice.
Robert E. Wood
Irving, Tex.
As an Arthur Andersen employee for over 20 years, I wholeheartedly agree that arrogance and greed ultimately led to its downfall. However, line partners did not have the authority to override the firm's Professional Standards Group (PSG). Andersen had an appeals process to resolve disputes between an engagement partner and the PSG. It was this process, in fact, that resulted in PSG partner Carl E. Bass being replaced on the Enron account.
Berardino warned against looking for scapegoats. But that is exactly what he was doing when he fired Enron engagement partner David Duncan. Unfortunately, Joe and his lieutenants bet the firm on this "rogue partner" strategy. The truth is, Andersen management knew very well what was going on at Enron. That is why Berardino decided on a showdown with the Justice Dept. rather than to cut a deal and hold his management team accountable.
F. Shanes
La Jolla, Calif.
As self-serving as Berardino is, he is right about one thing. Board members, who get paid huge sums for attending meetings that they appear to have slept through, need to be held financially accountable for their misfeasance.
David Tropf
Oviedo, Fla.
It is unfair to place the blame for what happened solely on Joe Berardino. When he became CEO, he inherited a host of problems. Some he knew about, but a lot he didn't. Things cannot be changed overnight in a company with 85,000 employees in 84 countries. It wasn't Berardino who signed off on Sunbeam Corp.'s accounts. And as for Enron, Jeffrey K. Skilling and Andrew S. Fastow, with their teams of bankers and lawyers, cooked up the asset-hiding partnerships, not the accountants.
There's an enormous difference between Berardino and the likes of ImClone Systems' Sam Waksal, Enron's Skilling, and Tyco International's L. Dennis Kozlowski.
Alison Onianwa
Atlanta
The role of internal auditors has gotten little attention during the recent corporate scandals. Many companies and the Institute of Internal Auditors have stressed the need for internal auditors to become "consultants" to management by uncovering operational inefficiencies. Often, this has come at the expense of their primary role to independently review controls over financial transactions and the quality of operations and report directly to the audit committee. Problems at WorldCom were brought to light by its internal auditors. How many other failures could have been avoided had more audit committees used their auditors correctly?
Mike Vahey
Boston
United Airlines' Management Bears Responsibility, Too
As a mechanic for United Airlines Inc. for 17 years, I am tired of hearing how greedy we are ("An unscheduled landing for United: Bankruptcy?" News: Analysis & Commentary, Aug. 12). We gave up six years' worth of salary raises in exchange for stock in the employee stock ownership plan formed in 1994. After eight years without a pay increase, we finally received a contract in March for a 29% raise spread over five years. Meantime, our ESOP funds are worthless, and our retro pay is in jeopardy.
Ask the upper management at UAL Corp. how much it is willing to sacrifice to get the government-backed loans. The three unions have been asked to give back 10% of wages while management gives up a measly 5%.
Rocky Ross
Puyallup, Wash.
You make it sound as if James E. Goodwin lost his job forecasting the airline's possible demise. In fact, it was his and Rono J. Dutta's blundering and miscalculation that weakened United. Their failed attempts at merging with US Airways Group Inc. and flying corporate jets wasted hundreds of millions of dollars. Likewise, stonewalling contract renewals for mechanics and pilots, who were stuck at 1993 pay levels, while giving raises to management cost the company even more. If United had better leadership prior to September 11, it would be no worse off now than American Airlines or Delta Air Lines.
John E. Boom
(United Airlines, retired)
Golden, Colo.
Higher Productivity, Unhappy Workers
It is somewhat baffling to see a modest rise in productivity cited as evidence that the economy is back on track ("A dimmer past. A brighter future?" Business Outlook, Aug. 12). With the recent massive layoffs, a rise in productivity may only reflect that fewer workers are producing the same or slightly less. Those who now must do the work of two people may find it hard to be cheerful about rising productivity.
Claude M. Gruener
Austin, Tex.
Making Sure the Buck Stops at Just the Right Place
In "Don't toss this stock-fraud law. Just fix it" (Legal Affairs, Aug. 5), Dan Carney advocates eliminating the "proportionate liability" provisions of the Private Securities Litigation Reform Act (PSLRA). Mr. Carney opines that this provision effectively shields professionals such as accountants from the true risk of litigation and somehow offers them the comfort they wouldn't otherwise have to stand behind specific positions they advocate with their clients.
Proportionate liability is a concept of fundamental fairness. That's what the PSLRA is about. Individuals and entities should be responsible for their own acts and not be held responsible for the acts of others just because they are perceived to have more assets than the wrongdoer. That is not--and should not be--the American system of justice.
Eugene D. O'Kelly
Chairman and CEO
KPMG LLP
New York
Russia's Young Tycoons Use Unsavory Tactics
Why do you feel it is necessary to credit Russia's new breed of gangster-capitalists with doing anything good for the Russian economy ("Russia's new wealth," International Business, Aug. 5)? I don't recall ever seeing positive coverage of an organized-crime group in your magazine, yet these "young capitalists" use many of the same strategies and tactics. You did not excuse the wrongdoings of the executives involved in the recently uncovered U.S. corporate scandals. What makes this band of Russian oligarch-thugs so attractive?
Larissa O. Kebuz
Maplewood, N.J.
Did Xerox Mislead Its Shareholders?
I witnessed self-destructive behavior at Xerox Corp. during my 14 years with the company ("Xerox has bigger worries than the SEC," Management, Aug. 12). It is amazing that the chief executive officer has the temerity to state that she knows everything and that the accounting oversight was one of "timing of revenue, not the authenticity of revenue." The plain truth of the matter is that the management of Xerox misled its shareholders.
Maarten R. Heybroek
Naples, Fla.
Driving Jeep Customers to Other Brands
Robert Lutz's dictate that all Jeeps pass the Rubicon Trail test created the very flaws that have driven many customers--me included--to other brands ("Jeep's identity crisis," Marketing, Aug. 12). The design requirement of steering that reduces kickback on rough terrain was unlivable in the long term.
Scott R. Lictus
Sinking Spring, Pa.
Bechtel: Setting the Record Straight on Bolivia
In his review of the book Blue Gold ("Water everywhere and not a drop to drink," Books, Aug. 12), Adam Aston repeated the author's mischaracterization of the failed water concession in Cochabamba, Bolivia, held by the Aguas del Tunari consortium and 27.5% owned by Bechtel.
The Bolivian government turned to the private sector because Cochabamba's system had been poorly managed and run at a loss for years. In response to public criticism, increased rates set by the government were rolled back after a month. Half the raise was geared to meet such government requirements as paying down the more than $30 million of debt accumulated by the utility that operated the system previously.
Customers still would have paid 20% less for water than the South American average. After the government rescinded its contract with Aguas del Tunari in April, 2000, the 60% of Cochabambinos connected to the system receive the same erratic service they endured for years.
Jeff Berger
Public Communications Manager
Bechtel Corp.
San Francisco
Getting People to Brush Is Half the Battle
As a dentist, I must say that there is no way flat bristles spinning in circles can effectively remove plaque from three-dimensional teeth ("Why P&G's smile is so bright," The Corporation, Aug. 12). This product is a toy at best. If it at least gets someone to brush, it is better than nothing.
Jerry Tankersley
Jackson, Miss.
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