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"Building Public Trust"
Ethics of Corporate Reporting
With Dr. Robert G. Eccles, Ph.D.
President, Advisory Capital Partners
Tuesday, July 23, 2002; 11
a.m. EDT
From Enron Corp. to the latest corporate accounting investigation of AOL Time Warner, Inc., corporate ethics and accountability have been under scrutiny.
Where are the business ethics regulated in corporate America? With the Securities Exchange Commission reviewing how to treat stock options as an expense and President Bush's recent speech to business leaders on Wall Street, corporate accounting scandals are affecting our economy.
On Tuesday, July 23 at 11 a.m. EDT, join Dr. Robert G. Eccles, Ph.D., co-author of "Building Public Trust: The Future of Corporate Reporting" (John Wiley & Sons, 2002), to talk about corporate ethics, corporate accounts reporting and investor confidence.
Eccles co-authored "Building Public Trust: The Future of Corporate Reporting" with Samuel A. DiPiazza, Jr., CEO of PricewaterhouseCoopers. The book was written to provide a broad framework for reforms in corporate reporting and how information is used in the capital markets. The book describes a Three-Tier Model for Corporate Transparency as the basis for improving the Corporate Reporting Supply Chain of executives, independent directors, audit firms, information distributors, sell-side analysts, standard setters, market regulators, enabling technologies and investors themselves.
Eccles is a founder and president of Advisory Capital Partners, Inc. (ACP). He is also a Senior Fellow of PricewaterhouseCoopers (PwC). Since 1993, ACP has provided strategic, financial and organizational advisory services to companies -- assistance with raising capital, negotiating joint ventures and strategic alliances, and assistance with mergers and acquisitions.
Prior to starting ACP, Eccles was a professor at Harvard Business Schoolwhere he was on the faculty for 14 years, receiving tenure in 1989. When he left HBS, he was chairman of the Organizational Behavior and Human Resource Management Area. While still at Harvard, Eccles pioneered a research methodology for identifying communication gaps in the capital markets. Six years ago Dr. Eccles began advising PricewaterhouseCoopers on its ValueReporting initiative.
Below is the transcript.
Editor's Note: Washingtonpost.com moderators retain editorial control
over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Dr. Robert G. Eccles, Ph.D.: Hello, everybody, and greetings from the Western Highlands. I'm in my wee house, looking across the ocean at the Isle of Skye. But enough chit-chat, let me get to answering your questions!!
Chicago, Ill.:
Greetings,
When I started an MBA program over the Internet, the first course I took was about ethics. The concept ethical standards was woven into almost every course (Statistical Analysis with ethics... what a concept).
Is my program that strange or is it prescient of how training leaders should have been?
Dr. Robert G. Eccles, Ph.D.: I think your program was ahead of its time, but prescient indeed. Just last week I read an article about how business schools are thinking much more about how ethics needs to be included in the curriculum. Some European business schools, like INSEAD, are definitely behind this. The big pedagogical question remains, however, which is whether ethics is something that can be taught or is it something people learn as young children.
Richmond, Va:
There was a provocative article in The New Yorker recently about the "star" culture at Enron. "Star" employees were allowed to pursue their own business initiatives unconstrained by the clear lines of organizational business units. Isn't this type of culture difficult for traditional accounting firms to audit? Don't people designated as "stars," operating in an unfettered environment that rewards self-confidence and hype, lack enough checks and balances to keep them from pushing ethical and legal boundaries?
Dr. Robert G. Eccles, Ph.D.: The "star" culture definitely presents significant challenges. The problem is especially great in investment banks, where we saw the "star" culture of sell-side analysts turn them into media darlings. They got carried away with themselves, in my view, and ended up hyping companies' stocks rather than providing good research. When it comes to the role of accounting firms, your point is a good one. What most people don't realize is that the audit is not designed to detect management fraud. This can be done through a kind of "forensic accounting" approach but it takes a lot more resources and would be a lot more expensive. Unless shareholders want to pay for that, investors depend upon management and the board to create the right culture and set the right "tone at the top" to discourage stars from thinking they can get away with things that others cannot.
Laurel, Md.:
My financial experience is probably fairly typical of small investors -- I can barely comprehend my mutual funds' prospectuses, since they're required to show certain things in a standard format.
Are corporate financial statements similarly "standardized" to be comprehensible to someone who owns a few shares of their stock? Could Joe Shareholder at least have developed the theory that Enron was shaky based on their statements?
Dr. Robert G. Eccles, Ph.D.: You have hit upon a very key point. Today's company financial statements are nearly impenetrable, even to experts. Lots of information is buried in footnotes, it's hard to separate the wheat from the chaff, and the big picture is often lost amongst the detail. Harvey Pitt has argued for "plain English" financial statements. This is a good start. However, more can be done by providing information in an Internet technology called XBRL (Extensible Business Reporting Language). Skip the technical details. What you could get as an individual investor is information loaded into your software in seconds so you could analyze it and not have to worry about all the formatting problems in non-standardized financial statement today.
Chicago, Ill.:
Greetings,
As a librarian in a law firm, I made a choice more than a decade ago not to purchase individual stocks. My decisions on mutual funds did not include the list of stocks owned, lest what I viewed as insider information be used to any advantage.
Looking at the insider trading rules, I applied the strictest possible interpretations.
Was I overreacting, or was I doing the right thing?
Dr. Robert G. Eccles, Ph.D.: I'm no lawyer, but I think you're overreacting. However, it's too bad many people today, including executives and directors, don't set the same moral high bar that you did. I personally wonder about executives selling into stock buyback programs designed to drive up a company's stock price, at least in the short term.
Plano, Tex.:
Since Corporations are by definition Amoral, it falls to society to make moral actions the most profitable for corporations. No other method is workable, consider the high profits and huge size of the drug trade for example. Shouldn't a key part of all regulation be that illegal actions never be even close to be justified by a risk-reward analysis? This means huge fines, long jail time, and assets forfietures for all corporate officers and knowledgable employees of all ranks, in addition to actions against the companies. In all cases, no one should profit by the illegal action at a minimum, and there should be a prohibitive penalty as well.
Dr. Robert G. Eccles, Ph.D.: I think stiff penalties are absolutely appropropriate to provide strong disincentives to breaking the law. Right now existing laws really aren't being reinforced the way they should. For me the issue isn't whether corporations are amoral, since all decisions end up being ones made by individuals. The problem is amoral or immoral individuals. And here I wonder just how much stiff punishments will dissuade them. People still commit murder even when there's a death penatly.
San Francisco, Calif.:
Arthur Andersen is the CPA firm responsible for the biggest scandals involving reckless accounting, such as Enron and WorldCom. Why are other CPA firms and their organization, the AICPA, so silent instead of saying that they would never engage in such shoddy practices? Their silence leads many to think that they might sign anything to please a client, as Andersen appears to have done.
Dr. Robert G. Eccles, Ph.D.: In the spirit of transparency, everyone should know that my co-author on my latest book is Sam DiPiazza, the CEO of PwC. I think you're absolutely right that the accounting firms should be out front explaining what they are doing and how they protect against the kinds of problems that appear to have happened at Andersen. I don't know the inside story at Andersen, but here's the basic issue. The engagement partner, who can be put under a lot of pressure to do the client's bidding, needs to be backed up by a national office group, called Risk & Quality at PwC, who backs up the partner and says "Nope, Mr./Ms. Client, I'm sorry, but the partner is right. If you don't like this answer we can take it up with the SEC or you can find another auditor." From what I can tell, Andersen let local partners have too much decision making autonomy and this put them under too much pressure.
Washington, D.C.:
A general comment. I'm a mid-career professional with an MBA working in high tech. I, like many of my colleagues, find myself really questioning the whole way business operates in this country. Particularly in the IT sector, we've all watched our management teams basically burn investors' money with nothing to show for it - and destroyed the financial security of their employees and their families in the process. We're now watching the bankruptcy laws basically become a way for corporations to avoid penalties for the misdeeds of their executives and directors. It's becoming difficult not to believe that basically, the profit motive will always trump ethics, and we need more European-style controls of what corporations can do to cut costs so that their impact on their communities is not so disastrous.
Dr. Robert G. Eccles, Ph.D.: I'm a pretty big "free market" guy so I'm not in favor of European-type controls. What I AM in favor of is much better disclosure, not just of financial information but all that other stuff that's important. I've been doing research on this for 10 years. In the case of the high tech sector things like market share, market growth, market size, competitive landscape, speed to market, etc at important but investors don't get good information here. If they did, they could make better decisions. But they also must hold themselves responsible for not hoping to catch the momentum and make a few quick bucks. Lots of people who lost money in the Internet bubble where day-traders who didn't think they needed to do any fundamental analysis. Shame on companies for providing misleading informaiton, or not enough informaiton. Shame on investors for not doing their homework. Bankrupticies will also exist in a capitalist system. Those from a failed business model are party of the game. Those from poor corporate disclosure are what we should be trying to prevent.
Bowie, Md.:
To what extent are government shortcomings like dergulation mania and addiction to corporate campaign money, responsible for creating an environment in which companies at least think they can get away with things?
Dr. Robert G. Eccles, Ph.D.: I don't think deregulation, done right, is the real problem here. Ambivalent and misguided deregulation can cause problems. But there's no question that the politicians are feeding at the trough of company (and labor union and interest group and so forth) donations. But now we see a counterreaction with each new proposal from the Democrats or Republicans proposing stiffer penalties. I think they're all hoping to distance themselves from a problem they've been a part of. Better would be if everybody admitted their sins and committed to what needs to be done to create the right kind of ethical environment, in Washington as well as Wall St. and the business community itself.
washingtonpost.com:
Your book, "Building Public Trust: The Future of Corporate Reporting," is very timely. When and why did you and Mr. DiPiazza decide to write your book on building public trust with corporate reporting? Since the Enron scandal and WorldCom bankruptcy, is there anything that you would have added to the book?
Dr. Robert G. Eccles, Ph.D.: Obviously, thanks for this question!! Short history. In February of 2001 I published a book called The ValueReporting Revolution: Moving Beyond the Earnings Game with three partners from PwC, one of whom (Bob Herz) is the new chairman of the FASB. It was a bit ahead of its' time. Sam asked about whether we should update the book once Enron broke. We decided that so much had changed we should write a second book, which I started working on here in the Highlands in early March. It was a real crunch, but we wanted to get this new book out to influence the debate. We never could have guessed about WorldCom and so forth, but I admit the timing was pretty good. In terms of any additional topics, the one that leaps to mind is compensation for executives and directors. Both in terms of structure and amounts. This is a bit beyond our core competence, but it would be good to have some things to say about what should be disclosed here so that investors can easily find out how much the total compensation is of executives and directors and whether directors are truly independent or not.
Washington, D.C.:
I work for a company that plans to post it's quarter earnings at the end of this month. The stock price is tanking faster than the averages -- rumor is the execs are selling off their stock. Do you think they know something they aren't telling their employees (i.e. earnings statements won't be good)? If true, is this insider trading? I hate to sell all my stock when the price is down, but I'm scared.
Dr. Robert G. Eccles, Ph.D.: You should be scared. The quarterly earnings thing has become Modern Drama. Lots of research shows that one period's worth of earnings, or even a long track record of earnings, is a poor indicator of future value creation. It's a lot of this other information that's important, as discussed in a previous reply, that investors never get. Catching people doing insider trader is hard and as an indidivual investor, you'll always find out too late. What you need to do is look for all the other relevant information to determine as best you can whether there's a good reason or not for the stock's decline.
Gaithersburg, Md.:
What happened to the days of making a quality product for a decent price? This concept can get a product into the hands of the consumer at a fair price. If it is a good product, everyone will want it and over years, you can make the billions of dollars, instead of stonewalling the consumers and making the money overnight. As you can see, in this concept, you will lose consumer confidence and lose your business. I pray for the days of American way of doing business again. The concepts and methods I learned in business school.
Dr. Robert G. Eccles, Ph.D.: I don't quite follow your point about losing consumer confidence and business, but I do agree that companies should take a longer term view in terms of producing quality products and building customer loyalty. The real problem is The Earnings Game in which everybody--companies, sell-side anlaysts and investors themselves-are complicit. To get back to the "good old days" we need investors to take a longer term view, starting with the corporations who have pension funds and then beat up on the fund managers every quarter for their performance. This, while in the same breath, they're complaining about the short-term pressure in the markets today. Everybody has to grow up here and recognize that true value, for customers and investors both, isn't created over night.
Los Angeles, Calif.:
Current methods of executive compensation -- pay, options and bonuses -- are fine ways to reward executives whose companies perform well when significant oversight by an INDEPENDENT board of directors exist. However, the notion of a fully independent board of directors does not exist. More often, corporate boards are hand picked cronies, friends, family, and fellow executives (often from the same company!) who rubber-stamp the designs of management, and who are often themselves party to enormous opportunities for wealth by way of stock options and pay.
By doing away with the concept of independent directors with limited financial incentive in the corporations they govern, Corporate America opened the door for the sort of criminality, corruption and unethical behavior practiced by most American corporations. And yes, despite the protestations of many in business and government, most American corporations are corrupt and unethical, just ask any of their former employees and investors who have suffered greatly due to the pursuit of short-term profits by management to placate Wall Street and line their own pocket.
Long ago, CEO's and executives feared, or at least respected, the board of directors due to the oversight and ability to remove officers from organizations due to malfeasance or poor performance. That concept is now all but forgotten. Only when a CEO or executive is fired who fails to live up to ethical standards and protect the well-being of investors and employees, will any sense of business purpose and ethical practices return to Corporate America.
Dr. Robert G. Eccles, Ph.D.: Wow, this is a longer one, but your points are excellent so let me elaborate a bit in a free form way. Directors are supposed to represent the interests of shareholders in order to solve what economists like to call the "principal/agent" problem. While no one investor can spend the time really monitoring management, unless it's a big one with a big share of the stock, the directors are paid to do this. This part of the system has broken down. Corporate governance is weak to laughable. The balance of power needs to shift back from management to the board. This won't be easy, because I think many executives give lip service to good governance, but basically want to be left alone to do their own thing. A number of things need to be done to make governance really serve shareholders. First, and your point, is that we need truly independent and competent directors. Too many that purportedly fit this label are cronies or CEOs of other firms where the CEO of the board they serve on is on their board. These interelocking directorates (and I'm not a conspiracy-theory Marxist sociologist) lead to a "I won't rock your boat, if you don't rock mine" mentality. The directors don't care about the money they make as diretors as much as the money they make as CEOs. But the problem goes deeper than that. Even well-menaing directors don't spend nearly enough time in this role. It's simply not worth it to them for what thery're paid. Secondly, they don't hvae the resources they need to really evaluate what management is telling them. Management has a big stuff that massages the numbers on capital spending, proposed M&A deals and so forth, in the way that suits them. Directors need to be able to hire their own advisors and experts who work directly for them and not management. The money from this should come from management, representing shareholders, since in the end it's shareholder's money, not managements'
Vienna, Va.:
During the past twenty years I've provided consulting (software) to several companies. One advantage to this is that I was able to see the design and implementation of corporate policies targeting the reduction of costs (mostly labor).
It seems every organization was led by management who were only too eager to participate in a variety of unethical (but not illegal) schemes.
Several companies paid employees much less than the bid/billing rates. Some companies created employee throughput models based on the assumption of picking up people at low starting wages, work 'em hard for a year and then replace them at the end of the year with another person at a low starting salary.
Management frequently set unrealistic targets for sales. Management frequently used performance measurement tools to justify labor cost containment.
Meanwhile, the execs get the big bucks. They get the awards: vacations, cars... If I've seen one, I've seen a hundred directors take credit for work done by subordinates. The director gets a sizable bonus, the subordinate gets nothing and knows nothing about the award the director received.
As I see it, we have a lot to clean up from an ethics standpoint.
Dr. Robert G. Eccles, Ph.D.: Couldn't agree more about cleaning things up from an ethics standpoint. But we also need to take a longer term view of such things as human capital. The "burn and churn" strategy you describe below may work pretty well for a short period of time, but it's no way to build a lasting organization. The problem is the short time frame in which executives can get paid a lot of money. Let's make executive compensation truly tied to longer term performance, and there's lots of suggestions for how to do so, like limiting the amount of stock options that can be cashed out until some years after the person has left the company. Ethics are an issue, but so are incentives. If we changed the game to encourage other types of behavior, we'd get it. Senior executives are generally pretty bright and will play by the rules they're given. So let's make the rules better.
Newington, Conn.:
I have a few queries regarding corporate ethics and accountability.
1. Can greed and ethics co-exist?
2. Is business and ethics like oil and water? Will they ever mix well?
3. Lack of political leadership that is ethical and accountable will always contribute to a lack of corporate ethics and accountability. What are your views?
Thank you for your answers.
Dr. Robert G. Eccles, Ph.D.: 1. Self-interest and ethics can co-exist. The former becomes greed when the latter are ignored.
2. They'd better mix well or the fundamental engine that drives our economy is going to be broken. We all know what's happened to the market, despite a strong economy, because of concerns about business behavior. If this problem isn't solve soon, a weak market will lead to a weak economy.
3. You're absolutely right. The problem here is that both the Democrats and Republicans are just trying to spin all these to their advantage when I don't see either party as purer than Caesar's wife. Where is the discussion in D.C. today about the extent to which they're part of the problem and want to be part of the solution. Right now we need solutions, not finger-pointing.
Wheaton, Md.:
Will Congress have the guts to turn their backs on their corporate contributors and tell the American taxpayer that they value ethics and fairness over favoritism - and actually expect that the laws against corporate fraud will be enforced? How will the Ken Lays of the country fare in the next 5 years - will some of them ACTUALLY go to jail?
Dr. Robert G. Eccles, Ph.D.: Call my a cynic, but I think business executives will change their behavior before Congress does. These people want to be elected and they need that campaign money!! We need to rethink how we fund campaigns. I don't like McCain's approach. I think we should let Congressmen and Senators raise money from whoever they want and just disclose everything completely. Nothing like sunlight to root out unseemly things, to create a bad metaphor. Those who are guilty should go to jail. That won't solve the fundamental problems, but it will at least show that we mean business about cleaning up business.
Silver Spring, Md.:
Do you envision the Corporate America
eventually coming to practice in a more
ethical and moral environment? If so,
what kind of time length do you think it will
take? I know this is a rather difficult
prediction, but it seems that many people
have lost faith in Corporate America after
seeing Worldcom go through this trauma.
Dr. Robert G. Eccles, Ph.D.: They'd better and it better not take forever. The problems aren't going to be solved in the next 6-13 months. But I think in the next 3 to 5 years fundamental changes can be made in disclosure, compensation, sell-side research, and governance that will restore investors' confidence in the markets. I think the market would improve before then if people saw a positive plan in place that has this longer term vision. I don't see that in either the Sarbanes or the Oxley bills today. They are putting tourniquets on patient to keep her from bleeding to death, not restoring the patient to a healty and vibrant life!!
Rockville, Md.:
Congress makes it easy for corporations to declare bankruptcy and harder for individuals. Great philosophy. So, when does Congress give up its trough and actually start doing some work for the WHOLE country, rather than the ones who can stuff their wall safes with unmarked, nonsequential bills? washingtonpost.com:
Dr. Eccles, do you think that government regulations would improve the management of corporate accounts?
Dr. Robert G. Eccles, Ph.D.: I wish I knew the answer on Congress, other than what I just said about changing how campaigns are financed. Part of the problem here is that while people don't like "Congress" the overwhelming majority like their own Congressman or Senator. So the people need to start making their views and expectations clear to their local representative. I think government regulation of corporate accounts in the sense of setting standards or doing audits would be a terrible idea. I think government regulation for enforcing the rules that get set for standards and auditing is a great idea.
Toronto Canada:
When is America (canada included) going to realize that the only way to regain investor confidence is to establish a seperation between industry and state.
Politicians and industry are way to close for comfort, kinda like the way the church and the state used to be way back when.
Dr. Robert G. Eccles, Ph.D.: How would you do this?
London, United Kingdom:
Congratulations on your new book from a fellow revolutionary. I can't wait to read it.
Referring to executive pay. Isn't this also part of a governance problem, especially the fact that in the US there is an idealisation of the "Corporate Hero CEO", who deserves a huge pay-check? washingtonpost.com:
Dr. Eccles, yesterday the Post came out with their annual Executive Pay report, Total Pay At the Top Declines but Still High (Post, July 22) . In your opinion, how does the executive pay directly relate to corporate ethics? Would there be a difference if executives, mentioned in the article, were paid completely in options and $0 salaries?
Dr. Robert G. Eccles, Ph.D.: Well, I think a lot of these CEO heros are quickly becoming CEO goats. As always, the pendulum swung too far one way and now it's swinging too far the other. We'll have to go through this cycle. Your solution below around options could actually make the problem worse. Executives would have an even bigger incentive to play short-term games to get the options to vest. After all, the average tenure of a CEO is now around 2 or 3 years and that's the period in which they make the big money. They don't much care what happens to the company after they're gone and have cashed out the big bucks. What we need to do is look at the whole structure of things like percentage of compensation in options, how they're valued, how they're earned (why give an executive a lot of options for just doing a great job in a bull market if all the competitors are doing better?), when they can be cashed out, when they can be repriced (probably shouldn't be except in extraordinary circumstances), having the board and shareholders approve option plans, and so forth. All of these just makes me think again, in anwer to a previous question, that the extra chapter I wish my new book had was one on compensation. Unfortunately, while I've been doing research on disclosure for over 10 years, I haven't been on compensation, so I'm a real neophyte here. Sounds like a good opportunity for somebody else to write a book!!
Swarthmore, Pa.:
Corporate ethics? Now THERE'S an oxymoron.
Seriously, though, having worked in a corporate environment for more than a decade now, I've come to believe that much of the foulness now being exposed can be attributed to the "democracy deficit" within corporate America. It's becoming clearer to everyone that the traditional model of shareholder capitalism -- investors own the company, elect a board of directors, which chooses a CEO -- is more or less a hoax. In reality, most CEOs rule with absolute power, handpick their boards, and choose their successors from a cohort of ruthless senior executives, each one determined to eradicate the others as soon as he/she rises to power.
In other words, coporate governance as currently practiced in the United States appears to combine the worst bureaucratic features of Soviet-style communism with the corrupt ruthlessness of the Byzantine Empire -- or the court of the Borgias. Why then, should we be surprised at the Mafia-like behavior that it produces?
Your thoughts?
Dr. Robert G. Eccles, Ph.D.: You're basically right and I think my answer to Los Angeles hits on a lot of the points I think are relevant to putting power back in the hands of shareholders--where it belongs!!
Plano, Tex.:
Just how independent are the Judges in these corporate cases? The charges brought could often result in sentances of 100's of years, and yet the convicted White Collar offenders spend less than 5 years in a country club prison. These White Collar crimes often have 100's or 1000's of victims that have their lives ruined, or sometimes ended. Victimless crimes like drug offenses yield sentances of 20+ years routinely. Are relationships like World Com massive donations to the RNC, the reason judges like William H. Barbour Jr., a Reagan appointee and cousin of a former RNC Chair the reason stock holder suits are dismissed? DOes the same result in the criminal cases?
Dr. Robert G. Eccles, Ph.D.: I ain't no lawyer, so I don't know what the deal is with judges giving these guys recreation time rather than hard time. But nothing like some criminal penalties and having the guilty spend time in a real prison, with lurid tales of what happens inside, to dissuade their peers from trying the same tricks!!
Washington, D.C.:
Los Angeles' point on governance is excellent. I work for a company now that has made all kinds of stupid product deals that don't produce revenue with companies on whose boards our CEO sits, or who share directors with us. We've been forced (that is, it was very strongly suggested by board members) that we spend lots of money with vendors who do us no good. It's pretty appalling stuff, but it seems to be the norm these days.
Dr. Robert G. Eccles, Ph.D.: If that's the norm, we're in bigger trouble than I thought. How did these vendors get the directors in their pocket?
Washington, D.C.:
When competing my MBA, the business ethics instructor used economic analysis to deterimine when formal government regulation was necessary. The theory, in simple form, is that if the marketplace fails to police itself, then government will step in. Based on that theory, isn't a necessary part of reform the credible threat that unless more is done to assure shareholders, entreprenuers will operate with a government bureaucrat second-guessing their every move?
I don't see any serious alternatives to business as usual and that causes me to believe reasonable reforms just aren't going to occur.
washingtonpost.com:
Assuming that most MBA programs have several requirement courses in ethics, how will the current scandals affect Business schools, their curriculum and ethics classes?
Dr. Robert G. Eccles, Ph.D.: I've read this argument before and I think it's basically right. When I'm talking to the business community, whether individuall or in groups, I tell them they have two choices. The first is to clean up their own act, uncomfortable as that may be. The second, and far less palatable, is to let government clean it up for them. They probably won't like the second solution and it will no doubt be meat axe surgery, but it will happen for sure and get at least part of the job done, albeit with some unintended consequences we'll pay a price for down the road. We're at a real turning point here and I hope the business community rises to the occasion. It's in their interest, and society's as a whole, that they do so.
Gaithersburg, Md.: To the extent that this is and should be a political issue, are both established tainted, and are Ralph Nader and Jim Hightower on the right track?
Dr. Robert G. Eccles, Ph.D.: I think both major parties are tainted. But I think Nader is a bit of a nut and past his due date. Hightower I know less about. But having some people stirring things up from outside the establishment, certainly can't hurt!!
Vienna, Va.:
What do you see in the future for the Big 5 (now the Big 4,3,2,1?) companies? I don't think that WorldCom is the last company out of the line of corporate scandals. In the meantime, the job market is extremely low and stocks are going down. I don't understand how the economy could have a positive outlook.
Dr. Robert G. Eccles, Ph.D.: I think we're at the end of a most enjoyable hour, where the sun has actually brightened here in the Highlands, so let me sign off by answering this last question. I'm afraid there will be some more accounting scandals. And we say in our book that auditing firms need to be a better job by closing the "Expectations Gap" about what an audit opinion really stands for and what investors hope it would. That said, it's kind of disturbing that we're now down to only four firms that can audit the world's largest and most complicated companies that account for the vast majority of the world's market cap. WE need them to be good and to get and keep great people. Beating them up, making them scapegoats, and making this profession even less desirable is in the interest of no one!! It may be therapeutic in the short term, but dumb in the long term.
Mckinney, Texx.:
Do you think that all the people involved in such clearly illegal actions like the shredding of documents at Author Anderson should go to jail? Any accountant would be well aware that what they were doing was a crime. If they put the whole lot of them in jail, it would be a even better way to stop such actions. A CEO might decide a 100 million bonus was worst the risk, but a 40k/yr CPA would have a different risk reward equation.
Dr. Robert G. Eccles, Ph.D.: Okay, one more quick one, because it's an easy answer. Anybody who breaks the law, no matter who they are, should go to jail if that law involves a jail penalty. Simple as that.
Dr. Robert G. Eccles, Ph.D.: Thanks for all your questions and enjoy the rest of your day. Mine is getting on, so pretty soon I just might wander down to the local pub and catch up on the latest gossip from the crofters and guys down at the fish farm. This is certainly a different life than the one I lead in the States. Bye, bye!!
washingtonpost.com:
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Dr. Robert G. Eccles, Ph.D.: Good question. I think what business schools need to be doing is evaluating the real effectiveness of these programs. It's kind of telling that they've been mandatory in most of them for about 10 years or so (I'm kind of guessing because I left Harvard Business School in 1993) and we still had all these problems. Some might say it's because the laws were broken by guys who were a lot older than MBA grads from the last 10 years. I think the problem is deeper than that. I also think ethics courses are viewed as of minor importance compared to things like finance and marketing. Maybe we should do something like making the ethics course the one thing a student has to really do well in to get their degree. I have no idea how to make this happen in reality. Or maybe convicted CEO criminals could be videotaped in return for a slight reduction in their sentence. We would videotape them in prison, perhaps over lunch or dinner with a spoon and metal tray, with no nice wine. These videotapes would then be shown to every MBA and accounting student in school.
This was fun. Hope it met your expectations. If you want to talk about this or anything else, just let me know. You have my phone number here. My e-mail address is robert.eccles@advisorycapital.com. But now I have to jump to a conference call!!
Some vacation, huh?
Best regards,
Bob
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