Thursday, September 05, 2002

The Army's new toys are so exotic that they look like something out of a comic book. They're designed to --- an MIT professor has recently apologized for submitting a grant proposal in which a well-reviewed comic was used without credit as clip art. But, via Brad DeLong, here's a useful reminder that high-tech systems are not immune to low-tech guile.

The setting: a joint British-American naval exercise before the Falklands war (yes, things may have improved since) in which an American carrier group centered around the USS Coral Sea was opposed by British Admiral Sandy Woodward, with a fleet of eight ships, only one of which was actually capable of doing serious damage to the carrier. That ship had to get through the defenses of the entire carrier group, with numerous ships whose sole function is to sink any real threat before it gets to the carrier. Nothing to do but just head inwards towards the carrier, from a hopefully unknown position, and hope for the best. And, oh yes, this:

The dusk faded to darkness and I ordered every light in the ship to be switched on, plus as many extras as we could find. I intended that from any distance we should look like a cruise liner -- from the bridge we looked like a floating Christmas tree.

We barrelled on through the tense night, in toward the USS Coral Sea, listening all the time to the International Voice radio frequencies. Sure enough, eventually one of the American destroyer captains came on line, asking us to identify ourselves. My in-house Peter Sellers imitator, already primed for the job, replied in his best Anglo-Indian: 'This is the liner Rawalpindi, bound from Bombay to the port of Dubai. Good night, and jolly good luck!' He sounded like the head waiter at the Surbiton Tandoori. But it was good enough. The Americans, who were conducting a 'limited war', were rather obliged to believe us and let us through while they thought about it. Vital minutes slipped by until we were eleven miles from their carrier, with our Exocet system locked on to her. They still thought are splendid display of lights was the Rawalpindi on her innocent business.

Doubt, however, began to enter their minds. And the signs of confusion were revealed when the carrier's escorts got over-excited and two of their big destroyers managed to 'open fire' on each other, over our heads. We could hear the glorious uproar on the radios. Then one of my officers calmly called the carrier to break the appalling news to Tom Brown that we were now in a position to put his ship on the bottom of the Indian Ocean and there was nothing he could do about it. 'We fired four Exocets twenty seconds ago,' he added for good measure, knowing this gave them about forty-five seconds to hit the deck...

Woodward noted in the post-mortem of the exercise, that he wouldn't likely have tried such tactics in a real war because, as he puts it, "our own particular brand of carefree 'cheekiness' was undoubtedly born of the unarguable fact that we knew that we weren't really going to be sunk no matter what happened, were we?" Extending that logic to forces that employed the "shoe bomber" is left as an exercise for the interested reader.

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...