Comment by Dominic Jones
THERE is a pattern here. First we were told that it was a few bad apples who cooked the books that led to fiascos like Enron.
Then came the options gaming scandal. At least 100 companies are now under investigation by the SEC. And that’s the tip of the iceberg. The SEC will never find all of the bad apples in that little drama; there’s too many of them.
According to the academics who first highlighted the problem, their data suggest that somewhere in the order of a third of all U.S. companies were rigging options in their executives’ favor a few years back.
At these companies it was a normal thing to do. Their managers never stopped to think about it. Greed overwhelmed decency and honesty.
Options were a wonderful thing and the boys and girls were stuffing themselves like sugar-rushed kids in an untended candy store.
But that, if you listened to leaders like SEC chairman Cox, was all in the past. SOX fixed the Great Options Swindle by shortening disclosure times.
“Why am I the only one speaking out about this?”
I wanted to believe him. But I’m not that naive. In my small little window on the world, this 19-inch monitor on my desk and my job as an online investor relations communication consultant, I saw evidence that many corporate types have lost their sense of right and wrong.
Investor relations departments, for example, are surreptitiously compiling reports on identifiable investors’ activities on their websites. They can call up a report on you, see when last you visited, what you downloaded, how long you stayed, what terms you searched for, what emails you read, what pages you forwarded, which reports you ordered.
And this is approved, no promoted by none other than a company owned by The Nasdaq Stock Market Inc. Why am I the only one who is speaking out about this? I feel like I’m in a bad dream, screaming but no one can hear.
Sure, cyber-snooping of this kind happens all the time in marketing, but since when was it okay to spy on your investors, the owners of the company, the people you want to entrust their money to your company?
Colossaly stupid doesn’t adequately describe HP debacle
I suppose there are some who will excuse spying on your investors the same way they excuse Hewlett-Packard’s chairwoman Patricia Dunn ordering an investigation that resulted in the illegal access of personal cell and home phone records of her fellow directors and nine prominent business journalists.
Colossally stupid, the phrase used by California Attorney General Bill Lockyer, doesn’t begin to adequately describe a decision like this. Stupid is what AOL did when it released search logs of 600,000 of its members on the Web. That stupidity cost three AOL staffers their jobs, and rightly so.
But there is much more to the HP fiasco than mere stupidity. It flows from a general lack of ethics in business today, an inability to tell right from wrong. Principle has given way to rules that everyone tries to find ways around instead of asking if what they are doing is right.
Instead of calling things what they are, we use terms like “pretexting” when what we really mean is impersonation, fraud, theft or hacking.
CEO pay is out of control. Boards aren’t answerable to the people they are supposed to represent. And the SEC, according to an appeals court decision this week (pdf 110KB, 16 pages), has been improperly blocking shareholders from exercising their rights as owners.
Does anyone feel confident investing in a market like this?
Shareholders make the best watchdogs
There is only one solution I can think of. Make companies accountable to shareholders. Liberalize the board nomination process, make it cheaper and easier to put proposals to a vote and let the real watchdogs — the shareholders — bring executives and management back into line.
At the same time, the SEC and others in the industry, including corporations themselves, must work to rekindle direct individual ownership of stocks.
Today, too much power is vested in a small group of large investment funds whose corporate governance often is worse than that of the corporations they invest in. The people who run these funds often have more in common with their corporate brethren than with the mom and pop investors whose money they manage.
With greater individual stock ownership, more choice on the proxy, people elected to boards will be more accountable, and likely more accessible.
Yes, diverse ownership bases did once allow managements to entrench themselves because shareholders were not as well organized as they are today. But with the Internet, shareholders of any size now have the ability to organize themselves no matter where they are in the world. If the SEC will let them.
I’m just shooting from the hip here and certainly I’m no expert in these matters. But I do love the capital markets and I believe strongly that it is vital that ordinary citizens have access to good investment opportunities in order to secure their retirements.
But what I see today is really testing my faith.