NewsNotables – Issue 40

Multinational Companies Unite to Fight Bribery

The Wall Street Journal, January 27, 2005
Some of the world’s largest construction and natural resource companies, their industries beset by corruption investigations around the globe, are starting to coalesce around a plan to clean house themselves.

CEOs of Newmont Mining Corporation of Denver, Rio Tinto PLC of London, and Bechtel Corporation of San Fransisco, global leaders of their industries, are signing onto a “zero tolerance” pact against paying bribes, being sponsored by a coalition of groups working with the World Economic Forum. Altogether, 47 large multinational companies have committed to the pact, representing over $200 billion in annual revenue.

Many big multinational companies already claim to observe strict prohibitions against bribery and influence peddling, and many have signed other pacts opposing corruption. This includes the world’s five largest oil companies who have not yet signed. Tom Cirigliano, of Exxon Mobil Corporation said signing the document would be “redundant,” because the company already has a zero-tolerance policy against bribery and because bribery is against U.S. law. He said he didn’t know whether the company would sign.

Comment: Since the world’s largest oil companies claim to have their own zero-tolerance policy, they obviously should sign the pact in support.

Marsh, Spitzer Settle With 50 Million, Apology

The Wall Street Journal, January 31, 2005
Marsh & McClennan Companies, Inc. reached an $850 million settlement of civil fraud charges with New York State’s attorney general and the state insurance department in a pact that includes an apology to the firm’s clients. Payments will be made in annual installments over the next four years. The money will serve as restitution for Marsh’s clients from 2001 through last year.

The deal also includes a commitment by Marsh to a new business model that eschews contingent commissions and other payment arrangements that create conflicts of interest. In its apology, Marsh acknowledged that certain Marsh employees “unlawfully deceived their customers,” dubbing their conduct “shameful.” At the same time, Marsh neither admitted nor denied wrongdoing, as is common in most regulatory settlements with big companies.

Comment: I certainly don’t know any CEOs who would pay out 50 million if they had not done anything wrong.

In Two Trials, Decoding CEO-Talk

The Wall Street Journal, January 27 and 28, 2005
When does a CEO’s command that the underlings keep Wall Street happy turn into instructions to commit fraud?

That is the question at the center of the trials of former WorldCom Inc. CEO Bernard Ebbers and ousted HealthSouth Corporation. CEO Richard Scrushy. Each is charged by the Justice Department with orchestrating huge accounting frauds that falsely inflated their companies’ earnings.

In both cases, the prosecutors have alleged that the chief executives essentially used code words to order subordinates to cook the books, while the defendants claim that their subordinates responded to cajoling for better performance by launching criminal conspiracies that left the boss out of the loop.

Prosecutors have accused Ebbers of giving oblique instructions to CFO Scott Sullivan and other employees to make false entries in the company’s books, when he reportedly said, “We have to hit the numbers.” A few days later, a witness overheard Ebbers apologizing to Sullivan, stating, “I’m sorry that you were asked to do what you were asked to do. You should not have been put in that position.” Then Ebbers gave his word that it “would never happen again.”

In the HealthSouth trial, CFO Aaron Beam said Mr. Scrushy instructed him and other finance executives to change the company’s revenue figures in mid-1996 to meet Wall Street expectations. Beam is quoted as saying, “We’ve done everything we can do that’s accounting-aggressive. We’ve pushed it to the limit, and we’re not making our numbers.” Beam states that in response, Scrushy replied, “It’s not an option to miss our numbers. You guys need to fix the numbers.”

Comment: Both CEOs are responsible for their own actions. Time will tell whether the CEOs ordered, suggested, or were wrongly interpreted as to their CFOs cooking the books.

Waksal, Father Settle With SEC, Both to Pay Fines

The Wall Street Journal, January 20, 2005
The settlement is finally final. Former ImClone Systems Inc. CEO Samuel Waksal and his father will pay more than $5 million in additional fines to settle charges they moved to sell shares in ImClone on advance knowledge that its cancer drug would be rejected by federal regulators in December 2001.

As a result of a partial settlement in March 2003, Dr. Waksal is in prison for trying to sell his own shares. His father settled the charges without admitting or denying wrongdoing. This scandal also sent Martha Stewart to prison after being convicted of lying about why she unloaded ImClone stock just before the price plunged. Waksal’s attorney said, “Dr. Waksal deeply regrets this period in his life … He is glad to have it behind him and his family.”

Comment: The litigation may be behind Dr. Waksal, but the repercussion from trying to escape personal financial loss will be with him forever. It has devastated a once-prominent family.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics