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Non-Tech : The Enron Scandal - Unmoderated -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (784)	1/28/2002 6:30:14 AM
From: stockman_scott	Respond to of 3602

Accounting for a murkier corporate America By Steven Syre & Charles Stein The Boston Globe 1/27/2002 merica's capital markets have long been known for two things: the trading liquidity that trillions of invested dollars can provide, and an unparalleled level of transparency that gives aid and comfort to shareholders who can believe they know what they own. Those markets have been considered the investor's version of the Visible Human, the 14-inch transparent model that helps children see and comprehend human anatomy in all its internal layers. When emerging markets collapse, across Asia for example, analysts often point to their lack of transparency and hold up America as the global gold standard. But the US stock market's reputation for clear and thorough financial reporting is taking its lumps. And a growing number of individual cases are making investors question how many companies are giving them partial or distorted views of reality. At one extreme, there is Enron Corp. Everyone knows the story line by now: Lots of action in entities off the balance sheet and watchdogs who fail to blow the whistle in public. When the game is up, rev up the shredders and watch the auditor take the Fifth on television. Other situations are making headlines at the same time. ImClone Systems Inc. is under increasing federal scrutiny by agencies that want to know whether the company misled investors about the prospects of its cancer drug Erbitux. A Business Week cover story this month questioned whether Internet-era giant Cisco Systems Inc. was really as profitable as it claimed through the boom. Conglomerate Tyco International Ltd. of Exeter, N.H., long suspect for its extremely complex business structure and financial accounting, announced plans last week to break up into four companies to simplify its organization and reduce debt. Are these incidents a series of noisy but unrepresentative anecdotes, or are capital markets and the stocks that trade in them broadly less transparent than they used to be? Academics and market pros suggest the latter, that it's tougher to get a clear picture of corporate America. ''In this much more complex world in which there are so many more ways to cut the end of the melon, transparency has actually slipped from where it was five or 10 years ago,'' said Samuel Hayes of the Harvard Business School. Part of the problem was created intentionally by people trying to take advantage of a stock market deluged with new money in the late1990s. Managers and a circle of abetters all had incentives to make the condition and operations of their business less clear to outsiders. A few cases are scandals; most fall into a grayer area. But companies everywhere assigned managers to spin control to convince Wall Street that business was good and they deserved a rich stock price-to-earnings multiple. ''Every important company had a `keeper of the multiple' to spoon-feed analysts,'' said Chuck Clough of Clough Capital Partners in Boston. ''Companies were using all kinds of accounting gimmickry to show higher earnings. How profitable was US business at the late stages of the boom? The answer is not very profitable at all.'' The people who run companies have greater incentives to fudge their financials today because they have so much more money at stake. A decade ago, investors decried unresponsive managers, insisting on a system of stock awards and options to align executive interests with those of shareholders. Perhaps it was a good idea taken too far. ''Corporate managers have a lot more skin in the game than they used to,'' said Paul Healy, a Harvard Business School professor. ''That potentially exacerbates the problem.'' Auditing firms found themselves in compromising situations. The large accounting firms that provide those services make much more money as business consultants, often to the same clients they audit. In some cases, academics say, an audit could practically become a loss leader to win more lucrative consulting business. The conflict of brokerage analysts who follow public stocks became the story of the Internet stock market collapse. Working for the same companies that serve as investment bankers, a role offering astronomically higher compensation, made it hard to blow any whistles, or even issue an occasional ''sell'' recommendation. Even money managers who bought stocks often selected individual investments less on their business performance than on the expectation the shares would rise. The flood of money into the stock market created enormous liquidity that pushed prices higher regardless. ''Liquidity can hide a lot of sins,'' said Clough. Most people in the crowd of managers, auditors, brokers, and investors ultimately had less incentive to be explicit and direct about the financial status of public companies. Krishna Palepu, a Harvard Business School professor focused on the interaction of companies and capital markets, believes those people have to be given greater financial rewards for publishing better information. ''Product information in magazines like Consumer Reports tends to be much better quality,'' he said. ''We should ask how we can produce that level of quality information, but we can't do it in financial markets.'' Complexity and confusion in accounting aren't always the result of people conspiring to hype a company. A large part of the problem is a more complex and confusing world in which businesses operate. Drug companies begin to write down the value of research long before they know whether a product will succeed or to what degree. Technology hardware companies sometimes write off inventory considered obsolete. The value of financial instruments like derivatives and swaps at any given moment can be a matter of endless debate. Dozens of issues like these make it harder to grasp the value of a company's assets or its business. Generally there are many more adding to the confusion than there were 10 or 20 years ago. ''Business has changed a lot from the days of making a product and shipping it out the door,'' said Scott Black, president of Delphi Management in Boston. But accounting was as much art as science, even in those days. The details of financial statements require many assumptions that can affect results across an entire spreadsheet. The result is not so much a black and white picture of a company as it is a version of reality or a snapshot in time. Excesses created by the stock market boom and its manipulation are painful and expensive but mostly self-correcting. The accounting knots that come with an increasingly complex world won't go away. It's more than likely that the problem will get worse. In the meantime, it's important to make sure everyone's interests are in line. The market needs good information and reliable watchdogs. It should be prepared to pay for them. _______________________________________ Steven Syre (617-929-2918) and Charles Stein (617-929-2922) can be reached by e-mail at boscap@globe.com. This story ran on page E1 of the Boston Globe on 1/27/2002.

To: Raymond Duray who wrote (784)	1/28/2002 11:15:32 AM
From: DOUG H	Respond to of 3602

Wow Raymundo, The deftness with which you handled that makes me think you've done it before. Larry Flynt Productions maybe? And heck fire, his companies are big contributors to the DNC. Betcha the 90's White House got a deal on their feeds, afterall, they were pumping it in by the terabyte. One hand washing the other as it were. Missed Maureen but if you got a link. BTW, how could Corporate America have gotten so out of hand with such a staunch champion of the little guy bill (I did'nt grope the help) clifton at the helm for 8 yrs?

To: Raymond Duray who wrote (784)	1/28/2002 5:45:22 PM
From: Walkingshadow	Read Replies (1) \| Respond to of 3602

Sir Raymond, LOL! I see you haven't lost a step...... <gggg> Here's something you might find amusing: nature.com FWIW, my money says after ad infinitum/ad nauseum political footballing and multi-million dollar investigations and investigations of the investigations [paid for by guess who], nobody goes to jail over Enron bidness, designated bagholders continue holding their bags in their aged newly impoverished condition, wealthy ex-Enronites with supersweet severance packages [uh, sorry.... access denied to the rank and file] laze away their days in opulence writing books and memoirs and negotiating movie deals, and---just to rub salt into the wounds---designated bagholders and their comrades [uh.... us] help bail out Enronites "for the good of the country." Thank God for a free market [please excuse the oxymoron] economy. ROTFLMAO! There. I feel so much better. Now I think I'll go outside and scream a few verses of God Bless America. JMVHO, as always......YMMV.....BNI....MSS WS