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FEBRUARY 9, 2004
Ripples From Italy's Milk Fraud The proposal for the new financial-market watchdog is not coming from the Italian Parliament, as it should be in a democracy, but is originating from Finance Minister Giulio Tremonti ("How Parmalat went sour," International Business, Jan. 12-19). It will only be an excuse to hit with a strong blow the governor of the Bank of Italy, Antonio Fazio, recently not respectful of the government line. Why is it that in Italy there is much discussion about the selection process for soccer referees for the national championship, yet nobody says a word about how the auditors and members of the collegio sindacale are chosen? Company law changed completely on Jan. 1, 2004. Until then, regulation was relatively straightforward: The three members of the collegio sindacale controlled the administration, legal and statutory compliance, bookkeeping, and the official balance sheet. Every three months, they had to reconcile cash and the value of property owned by or in custody of the company. Auditors were required only if the company was listed in the Italian stock exchange. My point (I'm a dottore commercialista [chartered accountant] and a member of many a collegio sindacale) is that at Parmalat, as well as in most Italian companies, both bodies are appointed by shareholders and are paid for by the company. But if the company is administered by the main shareholders, then the controllers are chosen and paid by the same people who should be controlled. Moreover, it is quite normal in smaller companies that the same accounting firm in charge of consulting in the areas of business, taxes, and contracts gets onto the collegio sindacale. This means that there is a high risk of compromising the independence of the collegio sindacale. Alessandro Nachira Bolzano, Italy The Parmalat fiasco, following Enron, WorldCom, Tyco International, and other recent major corporate disasters -- not to mention Wall Street's questionable behavior -- surely casts into serious doubt the Thatcher-Reagan myth that an unregulated private sector can run the world's business best without rules set by democratic governments elected by an enlightened public. Considering the number of people hurt by corporate shenanigans, is it not time for Western democratic governments to show some guts and take back the role of regulating and overseeing the nation's business? Sure, the corporate sector isn't happy with regulations, and laws, but neither did Blackbeard and his pirate cronies favor law and order on the high seas. F.A.C. Lister Nauheim, Germany I'm astounded such massive fraud could go undetected for so many years. Maybe it's time for auditors and bankers to adopt the world's most effective due-diligence technique: lunch. When I was a commercial banker in the 1970s, my colleagues and I made it a practice to visit borrowers, their major suppliers, customers, and other banks on a regular basis. Face-to-face meetings with intensive questions were the best intelligence-gathering missions we could devise. This closed the door to nonsense such as forged bank faxes. I believe that if the Parmalat auditors had traveled 80 miles from Parma to Milan to meet with the company bankers, they certainly would have learned that $5 billion in cash was a fantasy. They also would have had a superb lunch. Arthur Bernstein Boca Raton, Fla. Tipping The Scales For Schrempp Your portrayal of Jürgen E. Schrempp and DaimlerChrysler lacks fairness and balance ("The worst managers," Special Report, Jan. 12-19). Schrempp and DaimlerChrysler are in the process of creating a powerful global transportation company. The strategy of globalization has been discussed in great detail and agreed upon by the supervisory board. You have taken a snapshot of a long-term process, emphasized every negative, and eliminated the positives. This is a company with exciting new products in every brand, technology leadership, high positive cash flow, a strong balance sheet, stable credit ratings, consistent earnings, solid global positioning, an able management team, restructured Chrysler Group and Freightliner LLC business, etc. In a word, we respectfully ask for greater balance. Robert J. Lanigan Chairman Emeritus Owens-Illinois Inc. Toledo L.R. Wilson Chairman Nortel Networks Corp. Toronto Editor's note: Both writers are members of DaimlerChrysler's supervisory board.   In Defense Of Peter Burg's Record I am writing about your recent article in which BusinessWeek included H. Peter Burg, chairman and CEO of FirstEnergy Corp., as one of "The worst managers" in 2003 (Special Report, Jan. 12). I certainly agree with you that 2003 was a difficult year for FirstEnergy. The most tragic event occurred this week [Jan. 13], when Pete Burg died from complications during treatment for leukemia. However, I do not agree with your assessment of Pete's managerial performance. Pete Burg was an excellent manager and helped build First Energy into one of the five largest investor-owned utilities in the U.S. He provided strong leadership during the past troublesome year and was a man of the highest integrity and honesty. You correctly mentioned that FirstEnergy was involved in the August blackout. Unfortunately, your statement "Burg has seemingly written the book on how not to respond in a crisis" could not be further from the truth. Pete and the company fully cooperated in the subsequent investigation, acted in a very professional manner, and correctly took the position that a combination of institutions and events contributed to the blackout. FirstEnergy's board members are not "asleep at the switch" but rather had total confidence in Pete's leadership and are very confident of FirstEnergy's future success. Pete performed admirably during a most difficult year, and he does not deserve the dubious recognition you gave him. George M. Smart Canton, Ohio Editor's note: The writer is a FirstEnergy board member. BusinessWeek did not learn of Burg's illness before publication. Sarbanes-Oxley: New Technology Needed As usual, BusinessWeek has provided a first-class review of the year ahead for Industry. I was particularly impressed by the opportunities presented by Jim Kerstetter's "Sarbanes-Oxley sparks a software boom" (Industry Outlook, Jan. 12-19). However, there is a serious lack of systems that can verify accountancy information linking sales, stock, and returns, as compliance with Sarbanes-Oxley legislation calls for. A classic trick is to dispatch more goods than were actually sold, thus generating false sales in the last month of the quarter. Then, "after returns" are accounted for to generate negative sales in the first month of the new quarter. Systems must look at not just purely historic accounting information -- post any manipulation -- but must be capable of seamlessly linking both the sales estimates and sales reality to the financial function. The information technology companies that can integrate solutions in this area in the short term will benefit in the early part of 2004, with the bigger systems houses developing solutions later in the year. Gerald Michaluk Glasgow Say Farewell To Those High-Paying Jobs In "How the skeptics missed the power of productivity" (Economic Viewpoint, Jan. 12-19), Gary S. Becker missed one consequence: the need for fewer workers. Since "human capital" is significantly less expensive outside the U.S., and with the ability of the market, via the Internet, to outsource everything from information technology to drug development ("Big Pharma's new Promised Land?" International Business, Jan. 12-19), no one should have been surprised by December's new jobs number. The religion of laissez-faire capitalism -- the belief that the market's invisible hand will solve all problems -- is the reason pundits were caught off guard by the unemployment numbers. Once America's costs are in line with India and China, these experts say, the jobs will come back. Unfortunately, these countries don't share the same religion of laissez-faire and will simply reply: "We'll keep the high-paying jobs; you can keep your faith in the marketplace." Bruce Dailey Nagoya, Japan Outsourcing: The Rhetoric And The Reality As an Indian not connected with the IT industry, I find Spencer E. Ante's comments in "Shifting work offshore? Outsourcer beware" (News: The United States, Jan. 12-19) typical of the unacceptable bias present in most U.S. commentaries. Qualified software engineers (so-called in the U.S.) are called "workers" when it comes to people doing the same job in the third world. Likewise, "some bugs" becomes "riddled with errors" when it applies to non-U.S. operations. Worse, the entire diatribe is directed at India, a country where all of IT and IT-enabled services constitute only 3% of its gross domestic product. And it is slander to talk of piracy and strongly reference India, when India is 16th on the list. Remember, all things Japanese were unfairly ridiculed from the 1950s to the 1970s. Perhaps your non-U.S. readers should take heart from these words of Mahatma Gandhi: At first they ignore you, then they laugh at you, then they ridicule you, then they fight you, then you win. N.S. Bhaskar Bombay Ante makes the case that outsourcing the development of software offshore is difficult and does not yield expected cost and quality benefits. However, outsourcing in the domestic U.S. often produces similar results. The causes of disappointments in both venues are the same: overoptimism on the parts of the outsourcer and the vendor, ambiguous or incomplete product and performance requirements, and often inadequate project management. Michael E. Fagan Palo Alto, Calif.
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