VideoJuval Aviv hunts down stolen money — $10 billion over the last 10 years, or about 86 cents out of every dollar he seeks. As CEO of Interfor Inc., the retired commando and former operative for Mossad, the Israeli intelligence agency, works primarily for pension funds and bondholders who need to track and recover funds pilfered by white-collar criminals.
Not all these missions are cloak-and-dagger exercises, but Aviv maintains that he's has uncovered enough phantom contractors, kickback schemes, secret commissions, and embezzlement plots to fill several John Le Carré novels. Lately, business has been good.
For the corporate cleanup industry, times are good all around. According to new research from the nonprofit Turnaround Management Association, 77 percent of its 6,400 member companies had to turn away clients this past year, slightly down from last year's 83 percent. Most business referrals came from big stakeholders, such as banks and other lenders, as well as law firms.
Only 13 percent came directly from company management (though Aviv points out that businesses may "use the cover of a law firm" so that reports are covered by attorney-client confidentiality). But for companies that aren't focused on cash recovery, where are they focused?
Sometimes More Seems Like Less
In the two years since Enron's collapse, a host of companies have followed it into Chapter 11, or infamy, or both. Taking up the banner of corporate reform, new laws and regulations — to say nothing of commercially available "solutions" — were introduced faster than CFOs could empty their in-boxes. Yet many of these efforts — especially those intended as preventive measures, not as fixes — often seemed to do little more than cloud the issues.
Most reform measures, says Harvard Business School professor Quinn Mills, dance around the main problem — conflict of interest. Even those measures that do "a nice job" never address core incentive and behavioral problems, laments Mills, who adds that "in America's largest corporations, the CEO has too much power and ability to enrich himself and close associates."
Some of the new rules, such as the Sarbanes-Oxley financial literacy requirements for audit committee members, he considers "bureaucratic idiocy." Indeed, one finding of a recent CFO survey of senior financial executives — examined in the magazine's September cover story "Sticker Shock" — is that only 30 percent of respondents said that the benefits of Sarbanes-Oxley compliance outweigh the costs.
A more direct approach to addressing conflicts of interest, says Mills, would be to split the roles of chairman and chief executive officer, so the same person won't serve two masters — management and shareholders. But at most companies, he quips, "One sure way to get thrown off the board is to propose that the CEO not be chairman." (This measure, and many others that follow, apply just as well to businesses in good corporate health — but trying to be healthier — as they do to businesses on the mend.)
He also makes a case for rethinking stock options. While acknowledging that option grants are an important incentive, Mills joins many economists in suggesting that options should be decoupled from the company stock price. If options were indexed against the performance of peer companies, an industry, or the economy in general, he maintains, executives would be encouraged to focus on performance rather than stockmarket volatility.
Finally, Mills is an ardent proponent of an independent CFO and head of human resources. The two executives who control finance and compensation, says Mills, should be hired by, and report to, the board rather than the CEO. Appointing a corporate governance officer can be worthwhile, adds Diane Frankle, a partner with Palo Alto-based law firm Gray Cary, but only if the CGO has the authority to revise policies and provide governance training.
Mills has a ally in Stephen Roulac, a San Rafael, California-based financial and management consultant who likens good corporate governance to the U.S. Constitution. "Separation of powers" promotes appropriate decision making, declares Roulac. To that end, he offers a three-step process for corporate "decisions of consequence."
First, an individual or group originates and advocates an idea. Next, a second group conducts an internal evaluation of the plan, including the associated budget, capital resources, financial risk, and business processes. Finally, a third group — an independent board or committee — produces a quantitative and qualitative assessment.
Too time consuming? Perhaps Roulac's proposal is an example of how, in theory, most executives agree with corporate governance reform, but in the implementation, things get sticky. One former CEO, now a board member at a financial services company, agreed with Mills's idea that CFOs should report directly to the board. He added, though, that "it's not necessary at my company, because our culture doesn't foster conflict-of-interest problems." Self-examination, too, can be a sticking point.
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