Thursday, September 05, 2002

In the go-go 1990s, the business of America was business, and the businessman of the moment was Al Dunlap, the rock-star CEO known as a turnaround artist for several large companies, who was called "chainsaw Al" and loved it. Wall Street swooned for him --- when he was hired by Sunbeam, its stock price went up nearly fifty percent on that news alone. Dunlap's memoir, "Mean Business" was a bestseller was widely cited as a management guru and role model for other CEOs.

Dunlap's signature was ruthless cost-cutting --- he would come into a company and improve the balance sheets by eliminating every job and facility he could find which wasn't making an immediate contribution to bottom-line revenue. (Which, some claimed, was hollowing out the companies and leaving them unable to plan for the future and adapt, but never mind). And, oh yes, a little fraud.

Dunlap has agreed to pay a fine of $500,000 for Sunbeam's accounting practices on Dunlap's watch, which the SEC is calling "a primer in the techniques of financial fraud". Dunlap has also agreed to never again serve as an officer in any public company; his hand-picked CFO (who followed Dunlap from an earlier assignment) will be paying $200,000 and has already paid $250,000 to settle a shareholder lawsuit, in which Dunlap paid $15 million.

What made this possible? Well, for starters, their accounting firm, the highly reputable Arthur Andersen --- the partner responsible for the Sunbeam audit is now scheduled for a trial on fraud charges in January. (No criminal charges yet against Dunlap himself, but the statute of limitations is not yet up). But consider also corporate boards of directors, which are now largely populated by wealthy, well-connected drones who seem to believe that having just breathed the air at the right clubs, cocktail parties and cotillions is an acceptable substitute for actually knowing what is going on. At one crash course for board members of companies including Pfizer and Dow Chemical (who, in the wake of Enron, are suddenly worried about being held accountable), the average score on an accounting exam was 32%, and had the professor --- Chicago's Roman Weil --- exclaiming to the class in apparent disbelief, "Don't tell me that you're on the audit committee and can't tell me what retained earnings are".

(Which actually sheds possible light on one of the more puzzling aspects of the Enron story. The board says it had only sketchy and incomplete information about the fraudulent "special-purpose entities" run by ex-CFO Andy Fastow and his cronies; Fastow has said he kept them fully informed. They could both telling the truth --- perhaps the Enron board just didn't understand what Fastow was telling them).

So, these are the kind of hard-nosed private sector business values that Republicans embrace, and that folks like Harvey Pitt were trying to defend against new proposals for stricter accounting regulation from the Clinton administration. (He has an easier time of it now as Dubya's head of the SEC). But then again, we already knew that --- as a much-cited Hendrik Hertzberg one-pager in the New Yorker noted, the self-described businessmen in the Bush administration actually succeeded in business, when they did at all, by arranging for government support...


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