Cooking The Books

Anger is flying in the air all over America. It is not just the anger over the ugly spectacle of some white policemen beating up an unarmed teenager in Inglewood, California. It is also not just the anger of Michael Jackson for the boss of Sony Music for allegedly not adequately promoting an album that was probably erroneously called “Invincible”. These two are raising issues and making Americans angry alright, but the main anger today in the United States is the deep anger against crooks in American company boardrooms.

With a major U.S. election coming next November, President Bush and the Republican Party are probably sweating and praying that the center holds firm. The sweat is not only from the summer heat. Of course it is hot right now, but the reason for the anxiety of the U.S. president and his party is the scandal of corporate irresponsibility rocking his nation and threatening to throw into the trash bin a chance of second term of office for the Republican Party.

Democratic candidates already taking the corporate responsibility debate to their GOP opponents and a backgrounder on corporate responsibility legislation that Republicans have torpedoed in recent months. A new Web site that highlights the ways in which Democratic Members of Congress and Democratic candidates for Congress are leading the way in the fight for corporate accountability has also been launched ahead of the November elections.

Unlike in the period immediately after the event of September 11, 2001, when Democrats could not say anything to challenge the Bush administration for the fear of being labeled as being “soft on terrorism”, the president’s every action is now challenged, no thanks to the wave of “Book Cooking” by top corporate executives in America.

Expectedly, President Bush is not only anxious, he is also angry. He said this last week on Wall Street while commenting on the unfolding story of corporate fraud in his country.

At a time when the ENRON scandal was just simmering down; at a time when investors are still trying to find a way of coping with the sudden slump in high tech stocks; at a time when the market was still battling with the recession as a result of the September 11, 2001 terrorist attacks, the atrocious betrayal of the trust, deception of investors and inappropriate spending of shareholders money by some American companies, including WorldCom has come into the open.

One scholar, Martin Weiss, recently wrote that “The single most important piece of fundamental information you need about a company is its correct earnings”. It is no coincidence, therefore, that earnings information is often the prime target for manipulation and distortion – by none other than the company officials who are responsible for compiling and issuing the data for each quarter.

Something similar happened in Nigeria with the Banking sector during the regime of Ibrahim Babangida when crooks in three piece suits paraded banking boardrooms and offered bogus interest incentives to unsuspecting customers. The big deal with what is happening here in the United States is that the issue of investor confidence has emerged as a potential Achilles’ heel for president Bush, with the slide in the stock market eating into the savings of millions of Americans and threatening to stall the sputtering economic recovery of the world’s biggest economic power.

The hype aside, maybe what has happened had always been waiting to happen, especially in America. One can trace the origin to the usually overblown expectations from American investors and the pressure on companies to perform, fearing that if they don’t, the price of their stock will be severely punished.

So when these company bosses who live in luxury houses, fly first class and have yacht and cruise ships realize that their company’s actual earnings are falling short, many simply resort to often-times illegal gimmicks. They pump up stock prices with a positive earnings report, they massage the numbers, hide losses any way they can and artificially inflate revenues.

As the story unfolds, we are learning that it was a combination of all these that has led to the loss of billions of dollars belonging to shareholders and investors; it is what has caused thousands of people to be suddenly laid off from their jobs; it is what has triggered a new focus on the business dealings of president Bush and vice-president Cheney; it is what is giving the Republican Party the jitters.

Now, The American president and Dick Cheney seem set for more difficult periods. On the one part, President George Bush who told a Wall Street audience last week that “high-profile acts of deception have shaken people’s trust” and that his administration “will do everything in our power to end the days of cooking the books, shading the truth and breaking our laws”, is himself being accused of having taken an interest free loan. Although this is not illegal, it is one of the practices that the president wants the corporate crooks to stop.

In a speech largely aimed at soothing the nerves of scandal-fatigued investors, president Bush conceded that greed is not all good, and called for a “new ethic of personal responsibility in the business community”. He added that “There is no capitalism without conscience, there is no wealth without character”.

This attempt to shore up investor confidence appeared to have little immediate effect, with the Dow Jones Industrial Average shedding 178.81 points, or 1.93 percent, to 9096.09. Apart from this poor market showing in spite of the president’s effort, investors are nervous as US companies prepare to release earnings statements.

President Bush and officials in the White House are also nervous as the media and investor groups now beam their focus on the activities of Vice President Dick Cheney, when he was the chief executive of Halliburton, the giant oil service company. Cheney already has a suit filed against him asking question about some accounting practices alleged to be “very sharp”.

The situation is gradually moving from just an economic crisis to becoming a major political crisis for the Bush administration. His Wall Street speech has been rejected as inadequate by Democrats who argue that the former businessman lacks moral authority to lecture corporate America about responsibility. Senate Majority Leader Tom Daschle has also faulted president Bush’s handling of the matter saying that “It is not enough to talk about accountability; you have to act to ensure it”.

As the story continues to unfold, the Bush administration is perfecting a plan to check corporate crooks. This will include a requirement that CEOs vouch for their firm’s financial statements. Bush hopes this measure will promote transparency in financial statements without resorting to legislation that may be harmful in the long term.

The plan is however being described as mere window dressing. American public and investors, as well as the opposition party want the corporate crooks to be brought to justice. If those banking crooks in Nigeria could be brought to the law courts for growing fat on investor’s money, why should the United States which professes equality before the law not do same? No reason, except somebody is afraid of the eventual outcome of this revelation of corporate fraud in America.


This article was first published in The Anchor Newspaper of Nigeria.

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