By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
By Dennis Romero
As with the CEOs, so with their institutions. In the same CBS poll, just 6 percent of the public has ”a lot“ of confidence in big business -- the ”lowest level recorded since pollsters began asking this question in 1986,“ according to public-opinion analyst Ruy Teixeira, from whose weekly Public Opinion Watch I take these figures. Likewise, in a Gallup poll released July 10, 38 percent responded that business, not government, was the biggest threat to the nation -- the ”highest ‘threat’ reading for big business,“ writes Teixeira, ”since pollsters started asking this question way back in 1965.“
And no wonder. What Americans have learned in the past half-year is that CEOs, corporate boards, accounting firms and investment analysts have no incentive to accurately depict the condition of a corporation; indeed, they often have considerable incentive to distort it. And when investors, in the midst of a selloff, discover they cannot get any reliable information on companies‘ earnings or profits -- well, if that isn’t a prescription for a panic (shh! not that word!), I don‘t know what is.
II. A Political Earthquake (Maybe)
In this fetid Washington summer, that new stink in the air is the smell of Republican fear. Over the past couple of weeks, one Democratic member of Congress says of the two parties, ”We [the Democrats] see an opportunity -- at last -- but you can’t say we‘re feeling confident. But they’re scared shitless.“
Just how shitless remains to be seen. The GOP House leadership will have to decide this week whether to accede to the Senate Democrats‘ bill that splits accounting firms into separate auditing and consulting components, or to hold out for a weaker version that is truer to their laissez-faire ideology and big-time contributors. In the end, they’ll probably have to go along; one‘s choices in midlandslide are limited. But the reluctance of congressional Republicans to clean up business is as nothing next to the reluctance of the administration. By all appearances, no one in Bushland really wants to restructure accounting, or crack down on CEOs, or make companies report (and thus reduce) their executive stock options. In the face of a falling market, the failure of the president to advocate the minimal reforms required to reassure investors is mind-boggling. That is, until you realize what specific wing of capitalism the Bush administration represents.
For, above all else, this is the CEO administration. Dick Cheney was CEO of Halliburton; Treasury Secretary Paul O’Neill of Alcoa; Commerce Secretary (and W.‘s best friend) Don Evans of Tom Brown, an oil company; Defense demigod Don Rumsfeld of G.D. Searle and General Instrument and chairman of Gilead Sciences. And W. himself was the CEO (Ceremonial Events Officer) of the Texas Rangers. And there’s the problem -- for no group in American society more values solidarity than its CEOs. They are forever placing their fellow CEOs on their boards of directors, with the assurance that their counterparts will support the most outlandish executive pay packages, and in the knowledge that they themselves will be appointed to other corporate boards for exactly the same purpose. The concerns of investors are all well and good, then, but the Bushmen must be loyal to their lodge.
Congressional Republicans must be thrilled to realize that W. is more concerned with the care and feeding of CEOs than he is with ensuring their own re-election. The GOP is already in trouble because of the great selloff: In a CBS--New York Times poll of July 18, 42 percent of participants thought the country was on the right track, while 48 percent said it was on the wrong -- gloomy numbers for the party in the White House. Worse, the Harken and Halliburton scandals have combined with the public‘s pre-existing sense of who Bush is and whom he represents to create an image of his administration that should terrify Republicans aeverywhere. As to the president himself, according to the Times poll, respondents split 42 percent to 42 percent when asked whether Bush was more interested in protecting the interests of ordinary Americans or large corporations. Fifty percent said Bush was looking out for large corporations in his accounting reforms; just 37 percent said he was looking out for the average fella. And when asked whether members of the administration sided with large corporations or ordinary Americans, 61 percent said corporations, while only 27 percent said just plain folks.
In short, the American people clearly understand what the Bush administration is about. This is a boon for the Democrats; they must only hope that the American people don’t fully grasp what they are about. On the whole, the Democrats have performed admirably in promoting important, if limited, reforms of accounting, and in increasing the penalties for wayward corporate honchos. But if Bush has sided with CEOs over investors on virtually everything, the Democrats last week also sided with CEOs over investors on one crucial question: expensing stock options.
As CEOs tell it, rewarding executives and employees with stock options makes them all busy beavers bent solely on increasing their company‘s value. While stocks were booming, most investors happily went along with this notion; the rising tide lifted their boats alongside Larry Ellison’s floating island. But with stocks going south, and with the abuses of the Fastows and the Lays now public knowledge, investors have discovered that their relationship to CEOs can be just as adversarial as the workers‘. To begin with, despite the CEOs’ claims that options are widely distributed, a study from the National Center for Employee Ownership shows quite the opposite: that 75 percent of all options distributed in 2000 went to the top five officers of corporations. And by rewarding themselves with more options, the top executives dilute the value of the shares that investors hold. They engage in short-term deals that boost stock prices in time for option-cashing season, though these deals may contain ticking time bombs for their company a few years hence. Options reward the bright and dim alike; they enrich do-nothing executives who preside over companies during bubbles and booms, when every stock rises. (Dumb-luck CEOs who claim they merit such rewards are as roosters who take credit for the sunrise.) And by not posting these options as expenses in their annual reports, CEOs make it impossible to discern the real amount of their company‘s profits -- and the real value of its stock. By not expensing options, a number of studies have concluded, the reported profits of your average option-issuing company have been overstated by about 10 percent in recent years. In high-tech companies, which compensated for their original inability to pay good wages by issuing oodles of options to their execs, the overstatements have been far higher. According to the Bear Stearns investment house, if Cisco Systems had expensed its options in 1999-2000, its profits would have declined from $4.6 billion to $2.7 billion.