They’re at it again. They have opposed every progressive move society has widely demanded, from the minimum wage to the first environmental regulations. They lobbied against car safety laws in the 60s and consumer protection legislation in the 70s. They had nothing at all to say as corporate greed and boardroom crime were claiming company after company beginning with Enron (and continuing today with Hollinger) and then dismissed it all as being nothing more than a few rotten apples in the barrel. Some apples; some barrel, as Sir Winston might have said.
Now they seek a rollback of parts of the Sarbanes-Oxley legislation that were designed to put truth and accuracy in corporate financial statements and make directors and CEOs do their jobs honestly. They set up what they called a “commission” to give that effort more clout. Many CEOs have gladly fallen into line with the American Chamber of Commerce’s campaign. And just this week, Treasury Secretary Paulson sponsored a conference of top CEOs and business thinkers to showcase the subject and give it the imprimatur of the Bush administration. We set out our views on Alan Greenspan’s support for that move earlier this week. To his credit, SEC chairman Christopher Cox opposed such efforts to re-write the law in a hard hitting speech a few days ago.
Interesting, is it not, that the Chamber is especially bothered by Section 404 of the SOX Act, which requires companies to be very cautious about their system of internal controls. No wonder. Many have had a party with them in the past. We detailed Nortel’s costly failures on this score here. They’re still reeling from the inadequacy of past measures. Just this week, GM warned investors that “its performance was threatened by ‘ineffective’ controls over financial reporting, including inadequately trained personnel and failure to obtain management’s approval for some transactions,” according to the New York Times. The automaker will delay filing its financial statements for several weeks because of this latest snag. And talk about a boost for investor confidence: “The lack of effective internal controls could adversely affect our financial condition and ability to carry out our strategic business plan,” the company said in its public statement.
Then there is also the thorny problem of so many companies backdating stock options, like Research In Motion. What is also being revealed in this epidemic of corporate confessions is the fact that there are serious shortcomings in the system of internal controls in many organizations. As Finlay On Governance brought to public attention last week, RIM’s own board has now admitted that internal controls failed at that company as well:
The Special Committee determined that the Company failed to maintain adequate internal and accounting controls with respect to the issuance of options in compliance with the Company’s stock option plan…
You can see ensuring an adequate system of internal controls, which is really the backbone of the financial record keeping of an organization, is becoming a major headache for many boards. The jig is up, as Groucho Marx said in response to the market crash of 1929, and companies are having a problem coping with reality.
Many prefer the old, informal way of internal controls, where problems could be glossed over and numbers could be given to investors that were, shall we say, much more accommodating to management’s desires. They are bothered by the new laws that mean one and one add up to two, but before you can do that addition you have to make sure you know that one and one really exist, and their act location.
No, the Chamber and its cast of CEO characters are taking the it’s-all-too-hard-to-follow approach. GE’s Jeff Immelt is quoted in the Wall Street Journal as saying the regulatory system is “just too gosh-darn complex.” Can’t you just see it now: another excuse in the making for compensation committees to award even bigger bonuses to CEOs —this time it will be the hardship of following the law. That’s got to be worth a few million more in bonuses.
The Chamber of Commerce of course is not alone in these efforts to march back to a simpler time for CEOs and directors. We talked about this last year on these pages. The problem is that it wasn’t quite so simple for investors and employees. And the move is clearly designed to anticipate further problems like those at GM, Nortel and RIM and to blunt their impact.
Making it harder to sue auditors, making provisions of securities laws and investor protection measures weaker —this is the vision many business figures have of the post-Enron era that is still being buffeted by accounting scandals and boardroom shenanigans, as well as enormous volatility in the stock market. And to think people are actually paid to produce these kinds of ideas.
All of this would be laughable if it were not so serious a blunder by those who are entrusted with great responsibility. Not satisfied with the enormous betrayal of trust which Enron era scandals represent to the stakeholders of American capitalism, its so-called leaders wish now to remove some of the most important legal reforms that period produced, which is why these attempts to roll back key features of Sarbanes-Oxley legislation, and other reforms that protect American capitalism, are our call for the Outrage of the Week.