Where did all the money go?
Amongst the avalanche of deregulation that purged companies of annoying safeguards was a 1978 rule that allowed major accounting firms to hire themselves out as lucrative consultants to corporations whose accounts they were also auditing. Soon exciting consulting outstripped sober auditing as a substantial source of income. For example PricewaterhouseCoopers (PwC) took $38 million in consulting fees from the now disgraced Tyco Corporation but just $13.2 million in auditing fees. Soon accountants were engaged in a game of wink and nod that saw an accounting firm like Andersen okay deals like that which buried Enron debt in off-books special partnerships. Andersen’s slogan to attract consulting clients had promised ‘Your profits will snap, crackle and pop.’
Well pop’s right anyway. Although Andersen bore the brunt of the resulting backlash there is virtually no major accounting firm that has not been fined or settled shareholders’ suits for lax auditing practices of their corporate clients. A 1998 internal investigation at PwC found 8000 cases of executives making investments in companies they audited.
CEOS’ STOCK OPTIONS
Back in the 1980s somebody had the brilliant idea of rewarding the Chief Executives (and other corporate bigwigs) with stocks they could buy cheap to encourage them to hike stock value at all costs. The idea was as old as capitalism – harness private greed for the overall (corporate) good. But the beauty of a stock is its ‘liquidity’ – it can be sold whenever the bearer chooses – and that’s just how the Gordon Skillings and Ken Lays of Enron and a host of others played it. When their insider perspective allowed them to see trouble on the horizon they sold, and sold big, while at the same time encouraging ordinary chumps to continue to buy. Altogether US corporate executives are estimated to have walked away with some $66 billion during the 1990s’ boom and ended up selling their company stock before their companies crashed and burned.
PERKS FOR THE EXECS
At a time when buoyant stock value demanded wide-ranging layoffs and downsizing those at the corporate helm were coddled and had their ‘needs’ sympathetically tended. Insider loans (frequently forgiven) at attractive rates were made available to hard-pressed execs and their families. John Rigas and his kin pulled $3.1 billion out of Adelphia Communications, Bernie Ebbers $408 million out of WorldCom and the high-living Dennis Kozlowski got $88 million from Tyco. Sure, these guys had a lifestyle to maintain – Kozlowski alone had seven multi-million dollar homes to keep up, after all. Then there were the retirement packages and golden handshakes. Take Jack Welch, the legendary CEO of General Electric, under whose watch tens of thousands of workers lost their jobs. In addition to millions in lifetime income, Jack walked away with perpetual use of the company jet, apartments, maid service, limos, phones, country- club memberships and prime tickets to Wimbledon, the opera, the US Open and every New York Knicks home game.