James F. Reed
Traverse City, Mich.
A study by our Center for Business Innovation found that companies that took significant "special items" (greater than 10% of net income) showed far worse operating performance over the long term than companies that avoided such charges. Companies that avoided large special items increased their earnings nearly 3% faster each year during a 10-year period than the companies taking large special items--a finding that held for numerous industries. (The set of companies studied was the Russell 3000 index.) The study also found that companies taking large special items commanded higher price-earnings ratios than those that avoided such charges.
Over the past 10 years, there appears to have been a payoff in higher valuations from taking special charges. This last observation might help explain the increasing prevalence of special charges over the past 10 years.
Cap Gemini Ernst & Young
The Securities & Exchange Commission should consider adopting a system of financial examination used by both banking and insurance regulators. Audits should be taken from the public company's discretion and be subject to a lottery-type selection system run under the auspices of the Office of Chief Accountant of the SEC.
An audit "rotation" system of SEC companies would ensure independence of the auditor and a direct line to report on questionable issues and practices. This process may well result in the formulation of "fewer options" of financial reporting by management and greater consistency of reporting by SEC firms, further aiding external analysis and comparability.
Jerome B. Gordon
Richard Gaumer, CPA
For years, CPA firms have mainly adopted a stance as confidant to their audit clients rather than as independent auditor. With the advent of "tort reform," CPA firms no longer face stiff penalties when their mistakes contribute to investor losses. CPAs have lost the professionalism that Congress intended them to have when it granted them a monopoly franchise to perform truly independent audits.
Curtis C. Verschoor, CPA
Congratulations on your story about earnings reports that are often obfuscating--sometimes intentionally so. Your proposals left out one group that is crucial in determining the quality of reported earnings: the audit committee of the board of directors. Analysts and investors should consider the performance of the audit committee in providing credible financial information a key element in evaluating investment risk.
A major part of the solution to the earnings problem is to restore dividends to their rightful place. Stocks used to have cash flow--a stream of dividends whose regularity, growth, and quality could be assessed. A strong company could keep paying dividends during downturns, and a weak company might not. Now, most equities are like a commodity whose price goes up or down according to the whims of the market, driven by reported sales and reported earnings. Earnings will always be subject to judgment. Dividends are real, and should be the main investor cash-flow characteristic of equities.
Charles Walter Stewart
Unionville, Pa. "Dumping on the poor?" (Environment, Nov. 19) raises complicated issues about the conflict between environmental justice and a body of state and federal law designed to bring jobs to people who need them most. "Brownfields" redevelopment and empowerment zones have strong support across political and racial spectra.
Having made the decision to encourage the building of plants and facilities in blighted neighborhoods, how can we then turn around and, in the name of civil rights, try to revoke duly issued permits for these jobs-producing companies to operate? And at whose expense? Environmental safety standards are typically set at state and federal levels, but zoning decisions are and always have been local political decisions. Rest assured, if the largely minority political leadership of Camden, N.J., hadn't wanted the $50 million St. Lawrence Cement Group plant in the first place, it wouldn't have been built.
Director of Environmental Quality
Washington Even the most conscientious consumers can be victimized by identity thieves ("Don't let crooks steal your identity," BusinessWeek Investor, Nov. 19). Consumers who experience identity theft should report it to the Federal Trade Commission's ID Theft Hotline (toll-free 877 438-4338) or Web site (www.consumer.gov/idtheft).
The FTC's free booklet, "Identity Theft: When Bad Things Happen To Your Good Name," and the recently unveiled ID Theft Affidavit are also available from our hotline and Web site. The affidavit is accepted by the three major credit bureaus, participating credit issuers, and other financial institutions.
Reports of identity theft are added to Consumer Sentinel, an online cybertool and fraud-complaint database used by hundreds of law-enforcement agencies.
J. Howard Beales
Federal Trade Commission
Washington Our organization has identified 15 broad exceptions to the patient-consent requirements of the federal medical privacy regulation, including research, health-care operations, government health databases, and law enforcement ("How to keep prying eyes off your medical records," BusinessWeek Investor, Nov. 19). In addition, the National Association of Insurance Commissioners has proposed 31 exceptions to opt-in privacy requirements for medical data disclosures between banks, investment companies, and insurers. We have created privacy declaration forms for these issues. The forms are available at www.cchconline.org.
Citizens' Council on Health Care
St. Paul, Minn. "Trump rolls the dice with his creditors" (Finance, Nov. 19) got it wrong. The first sentence states: "You'd think Donald Trump would have learned his lesson." The sentence should have read: "You'd think Donald Trump's creditors would have learned their lesson."