Prizes for the characters who made 2002 a year investors want to forget
Gretchen Morgenson The New York Times
Monday, December 30, 2002
NEW YORK Harvey Pitt, L. Dennis Kozlowski, Bernard Ebbers, Jack Grubman: Their crashing falls from grace helped make 2002 a year for business scandals that may never be topped.
In fact, if a novelist like Anthony Trollope, the 19th-century chronicler of English society at its best and worst, had invented these characters, his readers would have rejected them as caricatures: too improbable, too grasping, too contemptible.
But real they were, as investors found out to their dismay this year. Although their struts across the stage were spectacles, they were not alone as standouts. Others earned a part in this year's bear market pageant.
In honor of their performances, it is again time to hand out the Augustus Melmotte Memorial Prizes, named for the swindler and schemer central to Trollope's novel "The Way We Live Now." Melmotte rose to the heights of London society on wealth he had raised ostensibly to build a railroad in North America but which instead went into his own pockets. He was found out, of course. But by that time, much of the money was gone.
Following are the prizes and the winners:
THE SOMEBODY ELSE'S FAULT AWARD To Alan Greenspan, the chairman of the Federal Reserve Board, who is busily ducking any blame for failing to prevent the stock market bubble and its awful aftermath.
His latest attempt came this month during a speech at the Economic Club of New York. In his inimitable prose, Greenspan said: "Whether incipient bubbles can be detected in real time and whether, once detected, they can be defused without inadvertently precipitating still greater adverse consequences for the economy remain in doubt."
Translation: Don't blame me for watching blithely as the bubble grew and grew. It was so very pretty, and how was I to know it would blow investors away when it popped?
Clearly, Greenspan is worried about his legacy and how history will view his inaction in the face of an obvious stock market mania. But he seems to have forgotten that when he points his finger elsewhere in blame, three fingers remain pointed at himself.
THE TIMING IS EVERYTHING AWARD To Jack Welch and Lou Gerstner, who left their chief executive posts just before the bottom fell out of their companies' stocks. When Welch retired from General Electric in early September 2001, its shares traded at $39.66; on Friday, they closed at $24.75. Gerstner stepped down as chief of IBM on March 1. Since then, its stock price has fallen 25 percent.
THE DID I REALLY SAY THAT? AWARD To Jeffrey Immelt, the chief executive of GE, who in an interview last Jan. 15 was asked which chief executives he admired. No. 2 in his pantheon, after Steven Ballmer of Microsoft, was Jean-Marie Messier, the disgraced and lately dismissed Vivendi Universal chief. Since then, Vivendi's stock has dropped 68 percent. Let's hope Immelt's favorites inside GE fare better.
THE THAT'S MORE LIKE IT AWARD To Messier, who ran off to start a hedge fund in October after wreaking havoc on shareholders of Vivendi Universal. Come to think of it, this is actually Messier's second attempt at a hedge fund, because wasn't that what Vivendi turned out to be, under his direction?
THE EXPANDING LANGUAGE AWARD To Gary Winnick, whose actions as top executive of Global Crossing leave him in danger of earning the title looter-in-chief and have given a new word to the lexicon.
Recalling that he sold stock worth $734 million in the telecommunications concern before it filed for bankruptcy, investors who think they've been cheated now say they've been "Winnicked." The new word has also been heard on golf courses, especially in the Los Angeles area, where Winnick lives. Golfers caught cheating on their scorecards are told by their partners: "Don't you Winnick me."
THE TRUTH IN ADVERTISING AWARD To Charles Schwab Corp., for showing investors how stocks are really sold in the famous cinema vérité television commercial entitled "Pep Talk." Talking up a stock to a roomful of brokers, a Wall Street executive says, "Don't mention the fundamentals; they stink." After promising courtside playoff tickets for the broker who sells the most stock, the executive says, "Now let's put some lipstick on this pig."
Bull's-eye.
THE DENIAL IS POTENT AWARD Bernard Ebbers, founder and former chief executive of WorldCom, whose creation crashed to earth in the largest bankruptcy filing in U.S. history in July. Although his shareholders lost everything and thousands of his workers lost their jobs, Ebbers told Congress last summer that he was proud of his work at WorldCom.
Ebbers still owes WorldCom $408 million, which he borrowed to meet margin calls at his brokerage firm when WorldCom shares started their slide. For those WorldCom creditors worried that Ebbers will never be able to repay his loan, look on the bright side. The man has all kinds of experience in other industries. Before he built WorldCom, he had been a milkman, a bouncer and a car salesman. But it might take a while to get the money back.
THE 'WHAT SCANDALS?' AWARD To Hardwick Simmons, chief executive of the Nasdaq stock market, on which the main index has fallen 31 percent this year. Throughout 2002, he kept asking what all the scandal talk was about. Simmons, who is against accounting for stock options as an employee cost, told a reporter at The Globe and Mail of Toronto that chief executives had recently grown too preoccupied with director independence. "All the academic literature I've ever seen - and I mean there is none on the other side - shows there is absolutely no correlation between the independence of one's board and the performance of one's company," he was quoted as saying. "In fact it works exactly the opposite."
And finally, a tip of the hat this year to Colin Devine, the Salomon Smith Barney analyst who warned investors away from Conseco stock in January 1999 and took a lot of heat from the company for it.
His focus on the company's numbers kept Devine from buying into the company's spin, proving that top-flight, skeptical analysis can indeed come out of a big Wall Street firm.
Copyright © 2002 The International Herald Tribune
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