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Thursday, 11 July, 2002, 08:57 GMT 09:57 UK
Confidence in corporate America: Ask an expert

  Click here to watch the forum.  

  • Click here to read the transcript

    President Bush has warned corporate executives that they face tough prison sentences if they intentionally mislead investors.

    He was in New York today speaking to business leaders.

    The Enron and WorldCom scandals have destabilised stock markets around the world and hit confidence in corporate America.

    The President's administration is closely associated with big business and voters in the United States have been angered by revelations of corporate fraud.

    The President's plans to curb business crime include a corporate fraud task force and a doubling of maximum prison terms for crooked executives.

    Alison Holmes, M.D. of BritishAmerican Business Inc. answered your questions in a live forum on Tuesday, 9 July.


    Transcript


    Newshost:

    Hello, welcome to the BBC interactive forum. President Bush has been outlining his plans to restore confidence in corporate America. Stock markets around the world have been in turmoil following the Enron and WorldCom affairs. People seem to have lost trust in big business and the president said that corporate America needed high ethical standards enforced as strict laws. He said he was setting up a corporate fraud task force and introducing tougher sentences for financial crimes. Well, what do you think? We've already had lots of e-mails from you about confidence in big corporations.

    And with me in the studio is Alison Holmes the managing director of BritishAmerican Business Inc., the leading trans-Atlantic business organisation with a membership of 1,000 companies. Alison, thank you very much for joining us. As you can imagine this is a subject which has attracted a lot of interest from our viewers. So I'll get started right away with the e-mails.

    Brian McLaren from Nottingham here in the UK asks can the president convince us that he can be impartial when dealing with corporations when he appears to wedded to deregulation?


    Alison Holmes:

    Well, I think the proof will be in the pudding. I think he's come up with some very good ideas and some very practical ideas which actually a lot of his business colleagues won't be that happy with. So in terms of his first ten-point plan, which he did back in March after the Enron affair, those looked fairly tame and I think what he's trying to do this time is actually put some teeth into what he was trying to set out then. The things that we're quite clear about in terms of doubling prison sentences and things, I think he's trying to distance himself and trying to make sure that he is explaining or at least trying to make sure that people have the confidence that the system will be able to take care of wrong-doers.

    He seems to be using the same rhetoric on this war on corporate misconduct as he is on the war on terrorism, the sort of idea that we will find them and we will weed them out and we will get rid of them, is hopefully, I think, what he is hoping will be his defence about what will happen with his own dealings with business and his own cabinet members.


    Newshost:

    He'll be hoping that will restore confidence both within corporate America and among investors as well.


    Alison Holmes:

    Well I think that he's most worried about the investors actually. Well, he is also worried about mid-term elections, but I think he is very worried about investor confidence and I think that America has bought into the stock market in such a huge way as individual investors that those are the people he's really looking to and trying to make sure that he will bring justice to those people who are obviously robbing them of their pensions.


    Newshost:

    Let's move onto the next question now. It's from a D Callaghan in Massachusetts and he or she is saying that the president has sounded tough as he usually does with such important matters like money and security, but this won't mean much unless it's actually backed up by stiffer regulations by the SEC.

    Now the crux of corporate problems, this person says, lies in the fact that many of the companies have gotten way too big. Now that means there's many gaps in them, they can hide and manipulate their fuzzy numbers, as Mr or Miss Callaghan calls them, and not even James Bond could crack some of their code now, it seems. This person's investments have taken a nosedive. Now, it's all gotten complicated - it really isn't helping, is what they seem to be saying.


    Alison Holmes:

    It has gotten very complicated. And actually I don't think that President Bush's case is helped by the fact that actually he wasn't recommending that the SEC get the increase in funding that they really needed. He's now come round to the idea that they need another $20 million and a hundred million in the next year's budget. But I think that's a bit late. But better late than never is my view. I think that the only people who can crack these codes are the people who create them and I think the SEC is finally, hopefully, getting at least some of the resource that they need as well as trying to make sure that auditors are also being as clear and transparent as they can be.

    And as well as what he's calling for in terms of independence with the remunerations committees and the auditors also being completely independent of the company's business. Hopefully some of that will help crack these codes because, as I say, the ones who know them best are the ones who are most deeply involved in them. So until we get some more independent light on that murky water we will always have difficulty trying to understand this.


    Newshost:

    A very difficult job to enforce those roles but it has to be done.


    Alison Holmes:

    I think that those are the people who are the only ones who will be able to sort it out for us. I don't think that individual investors and certainly I wouldn't put my hand up to say I would like to try and understand the P&L of some of the largest companies in the world. But the M&A frenzy of the 1980s has left us with a bit of a complicated corporate mess to sort out and I think that the SEC has been lagging behind in terms of its funding so that it can be the ones who are our corporate cops. That's what they are there to do and he's setting up a task force who will also bring some needed kind of initiative kick-start to the SEC's new monies and increased powers to do the job that they are actually supposed to have been doing a lot sooner than they are now.


    Newshost:

    As you said, it's a complex mess to unravel and some of our viewers, such as Mark Davies here in London, are asking is President Bush the right person to do this? He says that he doesn't think Bush will be able to restore confidence. His campaign has had close links with Enron, his advisers are in untenable positions, so Mr Davies says, with respect to cracking down on big business and he himself has been accused of irregularities regarding previous business dealings. Is this just a case of the pot calling the kettle black?


    Alison Holmes:

    Well, happily, or happily for him, he's well and truly out of his business career and is now in the business of politics. And I think what he has to do in the business of politics is try and restore that confidence which he so desperately needs. I think that one of the side issues to this but something that's terribly important, certainly from my point of view dealing with trans-Atlantic businesses, and the rest of the world should be looking at, is I don't actually think this is as isolated as it might at first appear. These businesses impact on businesses all over the world.

    The collapse of Andersen, for example, had a huge impact on job losses here in the UK. So actually that confidence is not something which is something we can stand back from, or be immune from, in any way, shape or form. There's a lot of comment about American capitalism. Well as far as I know, capitalism doesn't have national boundaries so if we don't make sure that actually the way capitalism works and the systems that we have to make sure that it works fairly and properly and transparently, we actually need to work on that not just in the American context but in the trans-Atlantic and international context as well.


    Newshost:

    Basically it needs a lot of coherent thinking really around the world.


    Alison Holmes:

    Not just from President Bush, I'm afraid, but I think that this is the first step in the right direction. But I think we need to do some more thinking on the issues that these folks are raising, and I think they've got very good points, but it's not just going to be about whether or not President Bush can sort it out. It will also be for the London Stock Exchange to sort out and everybody else around the world.


    Newshost:

    If it can happen in America, it can happen anywhere of course.


    Alison Holmes:

    You'd like to think that people would realise that faster but I'm a bit worried that people seem to think this is just an American problem but we can also take the forefront and the leadership role, if you will, around the world to try and say, actually, we also think that there are some problems that we need to sort out and stop letting the Americans take the heat. There's a lot of corporate issues that we need to be dealing with about governance and transparency which aren't being dealt with very sensibly anywhere in the world as far as I can see.


    Newshost:

    Staying with America for the moment, giving the subject we are looking at today, Steven from California says that Bush has handled Afghanistan alright in his view. His Democrat foes haven't actually made any headway against him in this matter. But will this crisis actually require someone, or, better, a few people from the corporate world, Enron, WorldCom, etc, to be made an example of and experience unprecedented penalties and jail time if Bush's words are to have any impact?


    Alison Holmes:

    Well, I think that's what we should be able to expect from what President Bush has said. I think that he is determined to root out the wrongdoers in corporate America and I think that's what the prison sentence was a signal to. I think what he is trying to suggest is that these folks are not going to get away with it and somehow he will make sure that they have some kind of criminal penalty as well as a civil penalty which is all they would have borne in the past and I think that he is trying to signal that huge shift in what he thinks is the right kind of penalty, level of penalty, by doubling that as to what they should be receiving is a result of their actions.


    Newshost:

    Some people might ask has this action, even though it's a welcome action, is it coming too late? Now Diana Northrop in Iowa says that these scandals are also a symptom of unchecked greed in American society that causes job losses, and anguish for the common citizens who are left without jobs or pensions. It's something that's been frequently said in the last few weeks is the actual fact that the excesses of the late 1990s, and we were all applauding big business and big profits, led to this. The people who were meant to be regulating it had their eyes closed, turned a blind eye and this is the payback now.


    Alison Holmes:

    Well I think excessive greed happens everywhere so I wouldn't suggest that corporate America is somehow the only purveyor of corporate greed or pernicious greed. I think that that is not one of the seven deadly sins for nothing, it's a sort of human condition. But I do think that a permissive society and in a society which is very, very energetic and very, very driven and very, very results-orientated, I think that that does create a concoction which can be quite dangerous for those smaller folks who just can't keep up or don't have the information that they need to try and understand what's really going on.

    And I think that part of the difficulty here is to try and take what's best about the American economy, let's not forget it's the strongest in the world and we are their number one investor and they are the number one investor in the United Kingdom. So they didn't get there by sitting around and counting beads under the oak tree, they actually jump up and do things and I think that positive part of their economy is something we have to try and harvest but actually making sure that we are not leaving ourselves open for the abuses that that can also create.


    Newshost:

    Now moving on slightly there is an interesting solution here which is coming from Dr Segal in Ottawa, who says corporate America is corrupt and greedy, now of course we were just saying that is a debatable point. Why hasn't President Bush recommended that these corporate thieves who've robbed poor pensioners of their life savings be given long prison terms? Now what is he waiting for? And why shouldn't the analysts and their companies that told gullible investors to buy stocks be asked to compensate the losers? Loss of trust in the marketplace is immense and to avoid a chaotic stock market collapse efforts should be made to restore investors' confidence. Otherwise there is going to be an economic downturn.


    Alison Holmes:

    Well, again, I think he is trying to make those noises. Now whether or not he's made them too late, or too little to really survive the initial shock that they have taken, we will have to wait and see. The markets seemed to be relatively quiet in their response to what's happened. So neither are they jumping up and down saying he's done it all right, nor are they saying we are going to go into a slide because this isn't nearly enough.

    So the economic downturn that's predicted, I'm actually happy to say, is not just reliant on just a few companies. And it is a very small number of companies, though their impact is immense, but we aren't actually talking about all of corporate America. So, happily, I don't think that the economic downturn will rest on whether or not several CEO's banded actually together to do out their shareholders, or to line their own pockets. But I do think that in terms of trust and confidence in the market, that's what this whole exercise is really all about.

    And President Bush has got to try everything that he can, and I am sure there are other tricks up his sleeve in terms of things that he needs to roll out as initiatives. The SEC will also have to see what they're going to do and I think that this task force will also have to lay out what it's about to try and make sure that we are really shoring up the right parts of the structure.


    Newshost:

    An interesting point you made there about the fact that it's only a couple of companies. Because looking at some of the coverage you've got you would think that all companies had corrupt accounts and misdeeds going on behind the scenes, when in actual fact it's only a handful. It does look like the majority of innocent companies that have been run in a perfectly good way seem to be dragged down alongside them. And this panic has engulfed the markets. Do you think what President Bush said today will actually help to ease some of that panic in the market and make investors take a more realistic look at what's going on?


    Alison Holmes:

    Well, as I say, I'm not sure we're seeing an actual panic in the market. I think we are seeing a lot of people wanting to know more about what's going on, asking a lot of very hard questions, which they are right to ask about corporate governance and transparency. I don't see any rushes on the Bank, or currency toppling. The dollar is still the number one invested currency in the entire globe, so everyone still has a fair amount of confidence, both in their economy and in their currency to think that that's the place that you want to invest your money.

    So I think that we're rushing ahead of ourselves a bit if we try and suggest that actually we are in a complete downward freefall. I think what we are doing is trying to make a reasonable and, hopefully, grown-up response to something that we have uncovered as wrongdoing by certain individuals which has had a huge amount of impact on thousands of people and therefore they should be given due process and brought to book and punished and that's, I think, a process which we will have to respect.

    I'm not sure that more regulation really helps the determined rogue but I do think that actually trying to make sure that the system values the long-term decision and not just forces a CEO into a short-term decision is the way that actually the whole culture has to move and that's not just in corporate America, that is corporate life and the more and more we force CEOs into these very short-termist decisions the more likely you are to have the pressure that builds up behind these kinds of activities.


    Newshost:

    Now, it's all very well and good what he said today and hopefully he is on the right track, but here's a question from Duncan in Edinburgh. He's saying that big companies put the president into power with funds for his campaign. Will he be forced to sidestep heavy penalties for fraudulent companies? Will he have to bow to the pressure of corporate America in that sense?


    Alison Holmes:

    Well I think that's where they've all been leading on the ten-year prison sentences. I think he's trying to say that I won't be light on people who are found to be doing wrong. I do think that he also needs to try and clear the name once and for all of he and his own colleagues. I think if his Cabinet is to have any credibility he is going to have to have a serious think about what he does about the fact that his Army Secretary was actually on the payroll of Enron and his own dealings and his vice-president's dealings have been under some scrutiny, shall we say, and I think that he's got to get rid of some that cloud as well rather than just saying that's all recycled stories of my political opponents. I don't think that that's a good enough reply and I don't think that the cloud over him will be lifted completely until he can find a way to make sure that that's absolutely sorted out.


    Newshost:

    You think that overall what he said in his speech is an encouraging start to that process?


    Alison Holmes:

    I think you have to start somewhere, I mean every big mess has got to have some starting point and you don't get to the end of a big mess and cleaning it up until you've actually started the first bit of clearance and I think that's all he can hope to do now. As I say, it may be too little and it may, hopefully, not be too late but I think that it's certainly a step in a direction that we would all value which is towards transparency and good governance.


    Newshost:

    Alison, thank you very much. That's all we have time for now, thanks to all of you who sent your e-mails to us and thank you very much to our guest Alison Holmes, from BritishAmerican Business Incorporated.

  • See also:

    08 Jul 02 | Business
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