City assault on USA Inc
Business staff
Sunday June 30, 2002
The Observer
In the wake of the biggest fraud in history - the $4 billion
WorldCom scandal - leading City and business figures attacked
US business ethics this weekend, and warned that Britain was
not immune to accounting disasters.
An Observer poll of businessmen at the end of a week of market
turmoil and investor panic showed opinion leaders united in
condemning the 'rush for growth' mentality that brought down
WorldCom.
Digby Jones, director general of the Confederation of British
Industry, said: 'It is high time the US understood there's a
difference between power and leadership. Look at US attitudes
to world trade, the protectionism in steel and airlines, and now
the lack of corporate governance and accountancy standards.'
Ken Costa, vice chairman of UBS Warburg, said greedy
executives had brought capitalism into disrepute. He called for
'more transparency and accountability'.
Costa, who has been behind some of the biggest deals of the
last 15 years, warned: 'You cannot regulate against determined
crooks.'
Terry Smith, chief executive of investment bank Collins Stewart
and a long-term whistleblower on companies that use creative
accounting , said: 'American business is in crisis, and it can
only get worse. Investors gave US companies high valuations
because they thought their accounting standards were the best
in the world, but they've had a shock.
'The US economic boom of the Nineties was never as great as
portrayed. Was it really growth, or sleight of hand? Now we're
finding out.'
Stephen King, managing director of global economics at HSBC,
said: 'The old relationship between productivity and profits has
fallen down. The true beneficiaries of the new economy have
been consumers rather than producers, and this has left an
expectations gap.'
His views were echoed by other senior bankers, and one veteran
financier added: 'Everything should be done to ensure that chief
executives are not incentivised in a way that could persuade
them to ramp up their share price by agreeing to deals that do
not make sound commercial sense. Big stock option awards
must be stopped.'
Howard Wheeldon, senior investment manager at Prudential
Bache Securities, said: 'Capitalism in now being put to the test.
The US needs to put its house in order.'
Many feared the American crisis could spill over to Europe.
Smith of Collins Stewart said: 'It's already here. There are a raft
of companies that capitalise costs. It's an old technique.'
Ted Baskerville, head of fraud investigations at corporate sleuth
Kroll Associates, said: 'There's no way you can say it won't
happen here. There's a great risk. It's not just in telecoms and
media. I don't think anyone is immune. We're not as proactive
as we should be about fraud.'
Some thought Britain could offer the US a lesson. The CBI's
Jones said: 'The US needs to be strong enough to see Britain as
a more transparent place to do business, and a safer place to
invest.
'I'm very keen that British commercial interests do not get tarred
with the same brush. We had our Maxwells and our BCCIs but
we tried hard to put our own house in order. I don't want an
investor or employee of a British company to think that this US
malaise is visiting Britain.'
But a senior British accounting regulator said: 'I could well see
scandals like Enron and WorldCom prompting the sort of cash
and credit crunch which would see a lot of companies financially
exposed on both sides of the Atlantic.
'History tells us that when easy cash dries up, fraudsters are no
longer able to cover themselves, and any number of other
scandals will float to the surface. The more they emerge, the
more damage is done to investor confidence.'
Last week's market turmoil is set to steady the hands of
Europe's central bankers as they decide whether to begin
raising interest rates.
The Bank of England's Monetary Policy Committee meets on
Wednesday and Thursday, but City economists do not expect a
rise until August.
But Michael Hume, UK economist at Lehman Brothers, said:
'Moving later may mean moving by more.'
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