- The Washington Times - Friday, May 9, 2003


   Hardly a day goes by without front page stories about executive hoggishness — all grist for the anti-capitalist mill and a left-wing assault on the Bush presidency in 2004. Hillary Clinton thinking 2004, rather than 2008? Close friends at private dinner parties believe she is. The arrival of her book “Living History” next month will see Sen. Clinton back in the public eye.
   How could the junior senator from New York beat the immensely popular commander in chief? Operation Iraqi Freedom may soon fade as Operation Enduring Freedom already has. Winning the peace is infinitely harder and more complex than the military blitz. It’s the economy, stupid and few denizens of Capitol Hill believe scaled-back tax cuts can fast forward to rebound mode.
   The millions of small investors who got taken to the cleaners by slick tricksters are angry, witness the current crop of annual stockholders meetings.
   AFL-CIO, smelling cordite, has manned the barricades of class warfare. Warren Buffett, arguably the world’s most astute investor, “Urges shareholders to rebel against executive greed,” said the banner headline in the Financial Times.
   Unless a countervailing force against executives at the trough were devised, Mr. Buffett, a $36 billion Democrat, warned some 10,000 stockholders and 5,000 guests in Omaha over the weekend that there would be a disconnect between “people at the top and the share owners who give them the money.” Add to this the avalanche of corporate scandals — more in five years than during the entire 20th century — that failed to trigger real reform, and greed, which has inflicted more harm to the world’s greatest free-enterprise system since September 11, 2001, than al Qaeda’s terrorists.
   After 12 weeks on the job, Bill Donaldson, the new Securities and Exchange Commission chairman, said Wall Street was permeated with wall-to-wall malfeasance that has cost investors countless billions.
   Dissident stockholders have filed scores of resolutions — a total of 150-odd are expected — designed to rein in corporate excesses. All are likely to be approved at annual meetings. “That’s a record,” says Stephen Davis, the chief executive officer of Davis Global Advisors, a Boston-based advisory group devoted to corporate governance, “that’s unheard of.”
   Well-managed Berkshire, with $16 billion in cash in its equities shopping basket, reported record first-quarter operating earnings of $1.7 billion. The company owns 13 percent of China’s state-run energy group Petro-China — a long-range bet on China’s humongous appetite for oil. One share of Berkshire Hathaway is now worth $73,000.
   The Enron scandal kicked off a seemingly endless roster of mega-scams and mega-cons two years ago, and still former Enron executives lower down the ladder were being arrested and indicted for what now appears to be the mother of all corporate heists. Almost everything Enron engaged in was skimming and scamming.
   From coast to coast, there is a rising cry of indignation as investors show up at company annual meetings to demand greater transparency and accountability. A minority of topsiders are relinquishing bonuses and trimming benefits (e.g., lifetime golf club dues). But whistleblowers fear the majority of executives will pretext an economic rebound to do nothing. The average total median compensation of a CEO is about $7 million a year.
   The example of American Airlines executives sheltering surreptitiously their generous compensation packages and retirement benefits while wheedling their employees out of $1.8 billion in annual wage concessions was cited the world over as an example of “bandit capitalism.” Concealed from the employees was $41 million earmarked to protect pensions if the company went belly up. AA CEO Don Carty walked the plank April 24.
   The specter of bankruptcy throughout the industry coaxed airlines executives into accepting an average 10 percent reduction in pay and benefits. Leo Mullin, Delta’s CEO, has agreed to relinquish $9 million of his $25 million future pay package. Some Fortune 500 companies are pre-empting dissent by cutting high-flying perks before their annual meetings, but leaving high salaries intact. Warren Buffett says company boards tend to treat skyrocketing compensation packages, as they would “play money.” Said the Wall Street sage, “You have someone with an enormous interest in the amount of compensation on one side of the table, and you have someone on the other side of the table who is not a Doberman on the board.”
   As a result, the litigation environment has become treacherous terrain for American corporations. In a National Legal Center for the Public Interest monograph, titled “The American Jury’s View of Corporate America: It’s Not a Pretty Picture,” Donald E. Vinson, a recognized national authority in providing legal assistance to corporate America, says, “Much of the battle that is waged in court must not only deal with accusations that have been made, but also with an overwhelming number of negative predispositions.” Many of which track back to the TV and Hollywood portrayal of corporate avarice. But in recent cases of wrongdoing, it has become increasingly difficult to tell them apart.
   The growing disconnect between the facts of a case and the damages awarded, and the disappearance of any clear relationship between compensatory and punitive damage awards, are largely a function high-stakes hanky-panky on the executive floor.
   Mastercard and VISA swallowed last week’s $3 billion antitrust settlement because the alternative was 4 million merchants — spearheaded by Wal-Mart and Sears — seeking punitive damages in the $40 billion to $100 billion range, to be tried by a Brooklyn jury.
   The $1.4 billion “global settlement” imposed by U.S. regulators on 10 major Wall Street investment firms was the proverbial tip of the iceberg. Below the surface, countless trusted professionals sold worthless products to millions of gullible consumers. Despite New York Attorney General Eliot Spitzer’s assurances that this particular chapter is closed, litigators are confident several more billions of dollars will eventually be awarded to individual punters who became victims of weapons of mass delusion when they acted on palpably fraudulent bogus research.
   From the biggest ever scandal on Wall Street to the flood of Internet pop-up penis enlargers and spammed herbal Viagra, the ripoff society is widely commented on in foreign media as one of the many unwelcome facets of imperium by JDAMs (Joint Direct Attack Munitions). But then foreign opinion about the U.S. is not high on the administration’s list of concerns.
   Mr. Super Clean has been appointed to head the board to overhaul the scandal-ridden accounting profession. But can Bill McDonough, the man who headed the New York Fed for 10 years, who is also known as a nice guy who knows no enemies, knock crooked accounting heads together, earn back respect for the CPA profession, and restore investor trust to the country’s financial system? He’ll need an army of scrupulous, over-zealous auditors to build a level playing field for investors who were betrayed by the system.
   With 20/20 hindsight, we now know it was corruption that fueled the stock market’s giddy climb in the late 1990s and that transferred the combined wealth of small investors at the bottom of the food chain to Wall Street bankers — and their CEO weekend friends.
   

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