Halliburton’s Dubai Move Draws Criticism
Associated Press, March 14, 2007
Halliburton’s decision to split its headquarters between Houston and Dubai, where the CEO will move, puts a key company post nearer to important markets and further from some political headaches. Halliburton insists it will not gain any special tax or legal advantages from the move, and will keep a big presence in Texas even though its business is now global.
Some Americans were startled to hear CEO Dave Lasar’s announcement that he would lead the company from a new headquarters in Dubai, the glitzy Mideast financial capital. Halliburton has been criticized because of the more than $19 billion in contracts awarded by the Pentagon to its KKB unit to be the sole provider of food and shelter services to the military in Iraq and Afghanistan.
Comment: This reminds me of the Congressional uproar over the business savvy emirate when a Dubai-owned firm bought operations in six U.S. ports last March. Congress voted to force Dubai to sell the U.S. ports, a move seen as anti-Arab. Will Congress make the same move again?
Spotlight: Michael Oxley
International Herald Tribune
Presiding over a recent dinner in Paris for more than 200 accountants, Michael Oxley, the former Republican congressman from Ohio and co-author of the Sarbanes-Oxley corporate governance law, was asked whether he realized he had helped create one of the most crushing financial burdens ever imposed on business.
Oxley was asked if he was aware that the law that he and Senator Paul Sarbanes rushed onto the books after the collapse of Enron and WorldCom had contributed to a sharp decline in listings on U.S. stock exchanges? They asked that knowing what he knows now about the costs and effects of the law, would he have done it any differently. “Absolutely,” Oxley answered. “Frankly, I would have written it differently, and he would have written it differently,” he added, referring to Sarbanes. “But it was not normal times.
“Everybody felt like Rome was burning. People felt like they were getting cheated. It was unlike anything I had ever seen in Congress in 25 years in terms of the heat from the body politic. And all the members were feeling it.” At the same time, Sarbanes was pushing through an even tougher version of the bill in the Senate, asking the requirement that companies conduct internal and external audits of their financial controls. That measure, known as Section 404, rang alarm bells among companies that feared it would exact punitive costs for good governance.
Comment: It’s obvious that Congress felt pressure to institute some sort of legislation that would hopefully stop or severally hinder collapses of the likes of Enron and WorldCom, of course after the fact. Each of us have different views of the law’s effectiveness and its associated cost. I believe the “after the fact” legislation is usually done more to make Congress look like they are doing the responsible thing rather than doing what makes sense to protect the public. When they feel that Rome is burning, heat in the political arena and from the administration, they act-sometimes too hastily without taking into account the long-term effects.
‘Squawk Box’ Trial to Hear Leak Claims
The Wall Street Journal, March 19, 2007
Day trading executives and ex-security brokers are accused of misusing information about institutional-client trades piped internally over brokerage firm “squawk boxes.” The government claims the executives and the brokers conspired to use information broadcast internally at brokerage firms over speaker systems about pending large orders by institutional investors, such as mutual funds, to make improper trades.
“Nowhere, any place was it written or said that squawk-box information was material, non-public information as alleged in the indictment,” said a lawyer for one of the ex-brokers.
Squawk boxes typically broadcast information about large client trades internally in order to facilitate those orders. The day traders would then engage in “front running,” or jumping ahead of the large order in the market in hopes of making a profit as the large order affects the stock price.
Comment: It seems pretty clear to me brokers should be prohibited from using information broadcast over “squawk boxes” to buy or sale securities. This information certainly isn’t available to the general public and, therefore, virtually assures profits for the brokers involved.
Ernst Censured Over Independence, Agrees to $1.5 Million Settlement
The Wall Street Journal, March 27, 2007
Ernst & Young LLP was censured by the Securities and Exchange Commission and will pay $1.5 million to settle charges that it compromised its independence through work it did for clients AIG and PNC Financial Services Group. Ernst settled without admitting or denying the SEC’s claim that its professional independence was undercut because it helped AIG develop and market a financial product sold to PNC Financial, an Ernst audit client.
The settlement marks the second time E&Y has been censured for allegedly lacking sufficient independence from companies it audits. In 2003, the SEC suspended E&Y from accepting new public company audit clients for six months, citing its alleged lack of independence in auditing PeopleSoft because E&Y’s consulting arm profited from recommending PeopleSoft software to customers.
Comment: I have high respect for Ernst & Young but am dismayed that they were caught up with violating independence issues and creating special purpose entities to shift troubled assets off company’s books — the very things that they scrutinize in the companies they audit.
By Roger Eigsti
Institute for Business, Technology, and Ethics