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Wednesday, 3 July, 2002, 09:49 GMT 10:49 UK
Have you lost faith in corporate America?
America's corporate sector has been hit by another scandal, with the office equipment giant Xerox indicating that it mis-stated its accounts by just under $2bn during the past five years.
Shares in the company plunged and shareholder confidence was further undermined after a report in the Wall Street Journal, suggested that the accounting black hole could be as large as $6bn.
The fall-out from this latest accounting scandal is expected to further deflate financial market confidence, already punctured by the WorldCom scandal.
The telecoms firm admitted to orchestrating a multi-billion dollar accounting fraud, saying its profits statement between January 2001 and March 2002 was overstated by $3.8bn.
US President George W Bush has warned that big companies cannot "fudge the numbers" and hope to get away with it.
Have you lost faith in corporate America in the wake of these latest scandals? Do you still trust big business?
This Talking Point was suggested by Benny, UK ex-pat:
"First Enron and now WorldCom have been caught lying about massive losses. Are they a few rotten apples or is this just the tip of a massive iceberg of hidden debt? Can we trust corporate America?"
"First Enron and now WorldCom have been caught lying about massive losses. Are they a few rotten apples or is this just the tip of a massive iceberg of hidden debt? Can we trust corporate America?"If you have any suggestions for Talking Points,
This debate is now closed. Read a selection of your comments below.
The fundamental problem is the auditors. Following years of amalgamations and takeovers we now have the big four each vying for business with each other, each out to secure the big corporate companies. How can they be unbiased when their livelihood depends on maintaining their relationship with their paymasters, the company they purport to audit?
Maybe the rest of the world is surprised by these scandals. But I know that most Americans aren't. We could see this coming.
Albert Bethelmie, USA
It looks as though this house of cards that is corporate America is starting to fall. As a protestor in Canada I see this as an affirmation that the struggle for true democracy is gaining momentum. We will have to wait and see.
Jack, from Canada, says that it looks like the corporate American house of cards is beginning to disintegrate. That could only happen in an economic context of sharply rising US unemployment rates, with announcements, week after week, over a long period of time of tens of thousands of layoffs. It must always be remembered that as long as Americans are kept working, we will consume like crazy, and continue to be the locomotive of global capitalism.
Corporate America isn't evil. But there are people who work in corporate America who are evil. So while I haven't lost faith that corporations can be very good for all of us, I do believe that boards of directors must do a much better job of finding people with integrity to run their companies.
If Bush decides to get tough on corporate fudging will this include his friends at Enron?
No, I haven't lost faith, but I think there are always about five percent of businesses that are corrupt, and this was amplified by the dot.com era to perhaps 10 percent. In any case there are feedback mechanisms. You can see it in their corporate culture, and the treatment of customers is often a tip-off.
Anyone in their right mind could see what was going on in the stock market. Investors are just as greedy as corporate execs and had no complaints when stock prices were soaring. That includes investors in other countries that rode the wave along with everyone else. The system needs to be fixed but investors should look at their own behaviour as well and not just blame corporate execs for their own ignorance. For those that say we should re-evaluate Marxism, I say read your history. I'll take free markets with a little corruption any time over a system where the government regulates not only how much a hamburger costs but the production of each element that goes into a hamburger and how many hamburgers can be produced each year. Give me a break.
Pauline Fisher, USA
I think that those who were responsible should be punished. Who knows, this may lead to a more transparent form of commerce.
The recent scandals are clearly a result of the neo-liberal policies adopted by Thatcher and Reagan which put company profits and shareholder value above everything else, creating a society of even greater greed. A similar thing happened in the UK with the privatisation of the railways, which led to a lack of investment in infrastructure so as to maximize short-term profit. Perhaps there is after all some truth in Marx - his utopia may be over, but his analysis of the capitalist system surely is not.
Due to our workaholic tendencies and our total preoccupation with consumption, we Americans never have the time to really understand the complexities of issues and therefore will blindly put our trust in anyone who makes a good pitch on television. This situation will continue to get worse, until people slow down and take time to take control of their lives. Until then we will careen from one disaster to the next. Believe me, this is not the country you would want as a world superpower!
I think the corporate world is full of criminals. I pulled out of the stock market two years ago because I thought the dot.com companies were all lying. I just hope the CEOs and CFOs under investigation, if found guilty, go to jail, have their homes, stock and any other financial gains taken away from them to compensate victims.
Lost faith? No I can't say that I've lost faith. You can't lose something that wasn't there to begin with. I am disappointed to see such a huge scandal so quickly after Enron, but hope that this time we will get more than the lip service to reform that Enron's collapse led to. I also hope that that Worldcom's collapse will not draw attention away from the investigations that still need to happen in regards to the government's role in the whole Enron debacle.
There is one sure-fire way to ensure that a company's books are clean: forbid any executive, manager or employee from holding stock in their own publicly-traded company. Because so much of an executive's compensation is tied up in stock options, they have a great incentive to ensure that the stock rises - at all costs. With the recent advent of compensating employees with stock options, executives simply compromised all of their staff and eliminated any possible whistleblowers. Everyone has a vested interest in ensuring that the financial charades continue. On the other hand, profits are real and can be distributed. Profit-sharing is the only real way to distribute wealth. Stock options, on the other hand, should be illegal.
Jeff, United States
What makes you think this is limited to America? Multi nationals by definition operate everywhere. So who can you trust? More a question of what do you value?
Capitalism without morality has the same faults as communism without morality and may well self-destruct in a similar manner
Anderson, Worldcom and Enron are not just "a few bad apples" - this IS how the world economy works - they are just the ones that have got caught - so far. The whole system is based on dishonesty and greed - that's why the G8 countries are so hyped up about terrorism - they are starting to fear the consequences of their greed and domination of the Third World - if Sept 11th was a wake up call, so was Enron.
I never had trust in corporate America. They don't do things for the benefit of us working people. I'm not surprised that corruption and thievery occurs at a massive level. I'm surprised that everyone else is surprised! It's about time that people see the corruption they passively allow to exist
I believe wholeheartedly in small business - it makes the world tick. But I also am confident that corporations have brought Americans the luxuries that even the poorest of our population enjoy at a low price - daily conveniences like appliances and cars manufactured in bulk to keep the price down. Can you even imagine the price of a toaster if they were all made painstakingly by small companies? At an outlet centre, they are priced to buy at $15. There are a few bad seeds, but the majority of corporate America provides convenience, jobs, and has honourable intent toward our country and the world.
Corporate America? I think the keyword is just "corporate"... massive overspending, out of touch with reality, these companies and auditors are out of control and are providing second rate service to each other. It seems most of the money is spent on the three R's: rebranding, remarketing and red tape, not provision of service.
The company I work for has all of its telecom systems with WorldCom so things are going to be interesting around here for a while.
The one great thing about the United States is that bloated corporations tend to collapse in on themselves - it happens all the time. This leaves ample room for small, creative companies to move into the vacuum. Entrepreneurial spirit is fed by the sacrifice of big business.
Big business runs on short-term motivations, so why do we stake our long-term security like jobs and pensions on them?
It's interesting that it isn't external events like 11 September causing this crisis but the corporate world's own dishonesty and greed.
Matt, Amsterdam, The Netherlands (ex-UK)
I would like to see a panel of competing audit firms (with no business other than audit). A firm's auditors would have to be selected at random each year. The audit firms would be paid by Companies House which would levy an audit firm on each company every year. Companies would have no right to reject the audit, and copies should be available to the public. The more scrutiny and transparency, the better.
The current administration is telling the Palestinian Authority to reform and root out corruption, while corporate corruption in the US threatens global economies. What a disgrace. I hope people around the globe realise that many Americans see through this hypocrisy and condemn it. Many more are sick of having their pockets picked by a select few.
Auditors are under pressure to produce favourable reports so that they can get next year's business from their customers. If corporate law was such that auditors could only audit a company's books for, say 2-3 years maximum, this may remove that pressure. The auditors would also know that in future someone else would be carrying out the audits, so there would be pressure to get it right, or be discovered.
Markets are like children; always pushing the limits of acceptable behaviour, and should be disciplined if the line is crossed. If the regulators react to this line crossing, by ignoring the problem and moving the line, then this encourages companies to progressively act worse. There comes a stage where it collapses in on itself, and you see companies in extreme situations they should have not been allowed to get anywhere near. Enron and WorldCom are just the market's latest teenage tearaways.
Look at the history of corporate America over the last two centuries and you will find it fraught with corruption, greed, and a selfish disregard for the public at large. Nothing has changed.
Until the personal consequences of white collar crime are increased to reflect their severity, then being fined for misrepresenting figures will only be regarded as a cost of doing business.
Rodger Edwards, UK
Having worked for two US companies I can safely say that I have no faith whatsoever in corporate America. It's all shiny teeth and broken promises.
It's only the tip of the iceberg. In the days ahead there will more stories of corrupt managers in every segment of the US corporate world. Remember the line from Wall Street... Greed is good!
Could it be that we never did recover from the 1929 crash, that strong economies have been nothing more than emperor's new clothes? It has for many years now been possible to create wealth from simply having wealth, and now we are at the point where mining and manufacturing have all but disappeared. Over the past 60 years I think we have witnessed pyramid selling on a global scale - and I think it's going to take us a long time to recover.
Brendan Fernandes, UK
This has come at a time when corporate America needs to clean up its act. It will get worse before it gets better. The pressure on share price and profits is huge in the US, and people are being pushed into criminal practices to maintain this; we desperately need to reorganise global auditing practices.
At last capitalism is starting to feed upon itself. Perhaps this will pave the way for a new form of enlightened commerce.
Faith could be restored if the Bush administration enabled tighter accounting rules and legislated for meaningful checks and controls, providing for a system of independent auditing free of conflicts of interest. However, given that 'Dubyah' is probably not the brightest US president in 70 years and that his administration is mostly owned and run by corporate America - I wouldn't hold my breath.
It will be interesting to see how many of WorldCom┐s directors face criminal charges. My bet is none!
Another part of the problem is the legal profession in America, not just the accounting profession. The US lawyers try to find loopholes in the accounting legislation so companies can appear to comply with the legislation while ignoring the spirit of it.
The UK has a slightly different approach - auditors here have to give a "true and fair" view" - ie, they are supposed to comply with the spirit.
Bob Nash, UK
I first went to the US in 1985 to buy a small business. During my search I came to realise that almost every small business I visited was keeping double books. One real one showing that the business was making a loss and one fictive one showing that the business was making huge profits. I was amazed that such practices were rampant and wondered why such activities could go unnoticed by government agencies. So-called corporate America will remain sick if only thing that matters are dollars and it doesn't matter how one gets them. Is it any wonder that huge corporations are also involved in shady activities? I really wonder how many rotten apples are out there in the US.
So, we have a few bad apples... let's not jump to too many conclusions about US corporations. The main lesson to be learned seems to revolve around the system of auditor accountability... and where were the IRS?
20 years ago an accountant told me only partly as a joke that the definition of profit was "anything the client wants it to be."
This is the result of the lack of integrity that evolved during the 90s in some business sectors.
It would seem that the personnel assigned to the likes of Enron and now WorldCom were either too inexperienced or incompetent to identify this type of fraud. Let's not immediately blame corporate US - rather the ethics of the new generation of business graduates - who were on a roll spending shareholders' funds.
Serious, ethical companies still exist... but they manage their own ethics and standards. Perhaps a brief look into the likes of Marriott International, DuPont or BMW would reassure the cynical.
Thomas Ganderton, UK
One of my friends works for a European bank as an analyst and has been banned from taking holidays in July in case more scandals emerge during the holiday season. This is serious and getting worse. I did have shares in the tech sector in a small company, but I've written off the value now. It will take a few years yet before things recover on the markets.
Lost faith? I never had any to begin with, and it seems I'm being proved right. It's another basic example of how too much power and too much money becomes a corrupting influence.
Like Paul M, I never had any faith in big business to start with, but perhaps I was naive enough to think that the law and the accountancy profession between them would be able to prevent this sort of thing. Except that when you think about it, both the legal and the accountancy professions are themselves big business. So - big business regulates big business. Hmmm.
Gordon McStraun, UK
It's true that corruption in a free market will always be uncovered but by that time, many people will have lost their investments and also their jobs.
New legislation should be introduced to make all main board directors culpable in the event of any breach, with very large fines and also the possibility of prison sentences where the rules and duties are breached and investors are deliberately misled.
Socialist state? What socialist state? Every major ecomony in the world is now capitalist, even Russia. Wherever money and influence meet, corruption is endemic. While the economy is booming, nobody cares and on the flip side, we have Enron and Worldcom. I think it will make people more risk averse. I'm with Clive (below). Accountants should be government-regulated.
A company can sack its auditors if it receives an audit report it is not happy with. Why is everyone so surprised about Enron and WorldCom when there is this conflict of interests? The current system should be thrown out and replaced by government-appointed auditors.
Clive, what makes you think government-appointed auditors would improve matters? We have had Hinduja, Mittal, Ecclestone, the smallpox vaccine case and any number of other shady deals between government and industry or industrialists. Governments' hands are often dirtier than those whose actions we now decry.
Clive's suggestion of government-appointed auditors has one major flaw; when things go wrong, the government isn't likely to prosecute itself, is it?
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