Magazine

It's the System, Stupid


The current financial mess requires nothing more than enforcement of existing laws by the Justice Dept., Federal Trade Commission, and Securities & Exchange Commission ("Let the reforms begin," Cover Story, July 22). The failure of these agencies to draw the lines encouraged companies (in fact required them, in order to remain competitive) to violate existing laws. There was no possibility of criminal liability, almost no possibility of civil action by government agency causing the companies to give up more than they stole, and civil cases for relief are routinely tossed out of court.

The best action would be to create a statutory remedy for shareholders to challenge specific types of corporate wrongdoing (excessive compensation, false financial statements, sweetheart deals, etc.), without the class-action- type restrictions that stifle most potential lawsuits of this type. Modeled on a whistle-blower incentive basis, suing shareholders and their lawyers would be entitled to a percentage of any recovered money or property from the corporation.

Carl E. Person

New York

What the public most wants to see is "insiders" returning the hundreds of millions of dollars received as incentive compensation by "mistake." There is no need to prove fraudulent behavior. If a real accounting shows that incentive targets were not achieved, the money and options should not have been paid in the first place and must be returned. Boards of directors have a fiduciary duty to get back their companies' assets, even if the recipients are their friends. Recovering the money will reduce the number of future "bad apples."

Jerome H. Grossman

Glen Cove, N.Y.

Banks should be required to spin off their analyst departments into separate research companies so that the research they provide is independent in both fact and appearance. Analysts have placed too much importance on meeting earnings estimates and, in turn, they have conditioned the investing public into an intolerance for volatility and any earnings "surprises," bad or good.

The investing public needs to accept a certain degree of earnings volatility. Then, senior executives could stop managing their earnings and focus on running the businesses more efficiently and effectively.

Craig Bender

New York

For years, in its Cover Stories, BusinessWeek has celebrated business leaders and corporations that turn out to be frauds. "Corporate crime's new top cop" (Cover Story, July 22) is strictly a puff piece about Deputy Attorney General Larry Dean Thompson. You state that he gives Bush "credibility" and that "he carries little political baggage."

As has been revealed elsewhere, this corrupt law-enforcement officer was head of the audit and compliance committee of Providian Financial Bank at the same time it was engaged in a $400 million fraud.

Do your readers have to question your credibility on every article, just as we now question the financial reports of Corporate America? Stop covering up for the crooks running the country.

Douglas Caddy

Houston

"The ghosts that won't go away" (Cover Story, July 22) looks for a few places where Democrats have struck matches, and it tries to fan the flames. Any one of the Democrats quoted has done more questionable (illegal) deeds than Bush. This is particularly so if we include campaign finance. George W. Bush has been more straightforward in his dealings with the public [relating to] his corporate dealings and his personal finances than any of the people lighting matches in this article.

Charles S. Harris

New Carlisle, Ohio

"It's time for a new era of reform" (Editorials, July 22) is much too accommodating of the offenders in this financial scandal. From so-called aggressive accounting to outright misrepresentations by self-serving corporate officers, the damage thus far has been severe and is headed toward catastrophic. The images of politicians asking "probing" questions of corrupt corporate officers, from whom they have accepted political contributions, bear an eerie similarity to the last days of the Roman Empire.

Prompt action is critical.

William G. Isherwood

Sacramento Is something wrong here? Has anyone in American business ever heard of a pay cut ("An overdose of options," Finance, July 15)? If a company is not doing well, why continue to enhance the pay packages of the managers and executives responsible for the reduced economic value of the corporations and stockholders who employ them?

Donald R. Schreiber

Supply, N.C. I agree with the assessment of Baxter International Inc. CEO Harry Kraemer Jr. We don't need more laws: What we need is people with a higher level of integrity to run our corporate institutions ("Too many rotten apples," News: Analysis & Commentary, July 15). We complain about corruption in Argentina, China, Columbia, Mexico, Nicaragua, Russia, etc., but the level of corruption in those countries pales when compared with what we have here in the U.S. We just happen to do it in a business suit with lawyers, accountants, bankers, and Wall Street analysts.

Joseph Pugliese

Macungie, Pa.

How can we expect politicians to crack down on corporate fraud when most have been bought and paid for with campaign donations? Corporate crime and political contributions are two sides of the same coin. If Senator Phil Gramm (R-Tex.), whose wife was an Enron director, had any sense of ethics, he would recuse himself from any discussion of corporate reform. Don't his fellow legislators recognize the conflict of interest? They must all be tainted.

Diane E. Shepherd

Kihei, Hawaii

It's time for the government to stop enabling accounting fraud ("Let's really clean up those numbers--now," News: Analysis & Commentary, July 15). The Internal Revenue Service and the SEC let companies keep two sets of books, one for tax reporting and the other for financial reporting. There should be no difference in the figures corporations report to the IRS and SEC. The combined surveillance and enforcement by these agencies of one set of books and identical tax and financial reports should give the investing public a clearer picture of corporate performance.

George C. Heidrich

McLean, Va.

In "`The economy is falling down around their ears,"' News: Analysis & Commentary, July 15), House Minority Leader Richard A. Gephardt (D-Mo.) states: "We have got tosee [if] needed regulations were relaxed or changed wrongly." I suggest Gephardt start his witch-hunt by taking a hard look at the Clinton Administration's eight years in office. Never has a nation seen so much immorality and abuse of power in their efforts to grab power in order to implement their social agenda. Virtually all of the poor corporate governance started or took place during the Clinton regime.

Edward Kelley

Los Altos, Calif. I can't think of worse timing for Michelle Conlin's article on coaching women managers to project "it," meaning executive presence, which translates into emphasizing form over substance ("She's gotta have it," BusinessWeek Investor, July 22). America doesn't need its women managers to be co-opted into this old boys' club, where image is more important than understanding either business or ethics.

Glitz got us into this earnings fiasco. More glitz won't get us out.

Ronald Tripp

Binghamton, N.Y.


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