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Flashbacks: 20 Years of Finance

Two tumultuous decades, from Treadway and Black Monday, to reengineering and ''irrational exuberance,'' to Reg FD and Sarbanes-Oxley.
Kate O'Sullivan, CFO Magazine
March 1, 2005

1985

A Delaware court rules that poison pills are legal antitakeover defenses. By 2004, companies like Goodyear Tire & Rubber Co. and ConAgra Foods Inc. are dismantling their provisions in the face of shareholder complaints. The National Commission on Fraudulent Financial Reporting — aka the Treadway Commission — is formed. Its 1987 report includes recommendations for management, boards, public accountants, and the Securities and Exchange Commission about how to prevent fraud.


1986

After heated congressional debate, President Ronald Reagan's Tax Reform Act of 1986, a massive overhaul of the U.S. tax system, becomes law. Ivan Boesky settles his insider-trading case with the SEC, paying back $100 million of his own money. The previous year, Boesky defined the decade with the immortal words, "Greed is all right, by the way. I think greed is healthy."


1987

The stock market suffers a 22.6 percent drop in a single October day to close at 1,738.74. The specialist system at the New York Stock Exchange comes under fire in a report on the crash.

Seventeen years later, the SEC is once again investigating specialists' trading practices.

Carpet-cleaning company turned Ponzi scheme ZZZZ Best declares bankruptcy. At congressional hearings, Rep. John D. Dingell (D-Mich.) asks, "Where were the independent auditors and the others that are paid to alert the public to fraud and deceit?" After a seven-year prison term, CEO Barry Minkow becomes a Christian minister and works as a fraud-buster for the FBI.


1988

Kohlberg Kravis Roberts & Co. pays $25 billion for RJR Nabisco after a bidding war. The dramatic takeover story is immortalized in the book Barbarians at the Gate.


1989

The Federal Deposit Insurance Corp. takes over insurance obligations for the Federal Savings and Loan Insurance Corp. after hundreds of banks close during the S&L crisis. One collapse — that of Lincoln Savings & Loan — ultimately costs taxpayers $3.5 billion. Its CEO, Charles Keating Jr., receives a 10-year jail sentence and a $250,000 fine for committing fraud.

With 90 million personal computers humming worldwide at the end of the decade, Microsoft founder Bill Gates's vision of a PC "on every desk and in every home," once viewed as audacious, begins to look modest. By 1990, IT spending will climb to 40 percent of total corporate expenditures. By 2000, it's 53 percent.


1990

Junk-bond king Michael Milken pleads guilty to six felony counts and agrees to pay a $200 million criminal penalty, as well as $400 million in a civil settlement. Sentenced to 10 years in prison for securities-law violations, Milken is released after just 1 year and 10 months; his former employer Drexel Burnham Lambert Group Inc. files for Chapter 11.

Congress passes the CFO Act in order to strengthen financial management at government agencies. Agencies dutifully install finance chiefs, but to this day, nearly all continue to fail audits.

Developer Donald Trump avoids bankruptcy, landing a $20 million loan from his bankers, which agree to bail out his hotel, casino, and air-shuttle businesses. He returns to prominence in 2004 with a top-rated reality-TV show, another bankruptcy, and the same interesting hair-do.


1991

Exxon pleads guilty to four misdemeanors in the Valdez oil tanker spill and pays $1.03 billion to settle.

The U.S. Sentencing Commission adopts guidelines for assessing penalties for corporations convicted of white-collar crimes. In 2005, some of those parameters come into question when the U.S. Supreme Court rules that the individual sentencing guidelines are unconstitutional.


1992

IBM announces plans to lay off 25,000 workers and take a $6 billion charge as it phases out its mainframe-computer business. It will resurrect itself, thanks to the success of its PC business under CEO Lou Gerstner and CFO Jerry York, who join the company in 1993. In 2004, IBM exits the PC business, too, to focus on services. The recession leads to a string of bankruptcies, as Macy's, TWA, and Wang Labs all file for Chapter 11. Phar-Mor Inc. fires its co-founder and CFO for alleged accounting manipulation; the company later takes a $350 million charge and it, too, files for bankruptcy.

Trash collector Waste Management Inc. and eight of its employees are indicted for stealing from the city of San Jose, California. In 1998, the company will be indicted for conspiracy. The SEC will later sue five executives, including CFO James E. Koenig, for a scheme to misrepresent the company's financial results by some $1.7 billion.


1993

In an attempt to settle labor strife and reduce costs, United Air Lines Inc. sells a majority stake to its unions for $5 billion in exchange for labor concessions. More than 10 years later, the airline continues to struggle with labor issues, including its massive pension obligations, as it fights to emerge from bankruptcy.


Michael Hammer and James Champy publish Reengineering the Corporation: A Manifesto for Business Revolution. It will sell more than 2.5 million copies and become the bible of the business-process retooling movement, creating jobs for legions of consultants.

Christopher Steffen joins Eastman Kodak Co. as CFO. The markets applaud, boosting the company's market capitalization by more than $2 billion within days. Steffen is nicknamed "the $2 billion man" for his sudden contribution. He resigns 11 weeks later, causing Kodak's stock to drop.


1994

Bowing to pressure, the Financial Accounting Standards Board decides to hold off on requiring firms to deduct their stock-option grants. Ten years later, the issue is still subject to debate.

Derivatives losses at Gibson Greetings Inc. and Procter & Gamble lead to outcries against financial engineering.

Woolworth CEO (and former CFO) William Lavin resigns amid a financial-reporting probe.


1995

Chemical Banking and Chase Manhattan agree to merge to create the largest bank in the United States. The trend toward consolidation in the financial-services sector accelerates over the next decade, with the mergers of NationsBank and BankAmerica, Chase Manhattan and J.P. Morgan, and Fleet and Bank of America, among others.

The Private Securities Litigation Act becomes law despite a veto by President Bill Clinton. To the chagrin of the bill's sponsors, since its enactment 2,177 issuers have been named in securities fraud lawsuits.


1996

In a speech at the American Enterprise Institute, Fed chairman Alan Greenspan questions whether U.S. markets are over-valued due to "irrational exuberance," sending stock and bond prices tumbling.

"Restructuring" sweeps Corporate America: AT&T eliminates 40,000 jobs and takes a $4 billion charge, and Digital Equipment Corp. announces plans to cut 7,000 jobs. Sunbeam Products Inc., with "Chainsaw Al" Dunlap at the helm, says it will reduce the company's workforce by 50 percent. As companies focus on their so-called core competencies, outsourcing of nonessential functions becomes common practice.


1997

And then there were five: Coopers & Lybrand plans to merge with Price Waterhouse to create the aptly named PricewaterhouseCoopers. Ernst & Young agrees to merge with KPMG Peat Marwick, but later abandons the effort.

CUC International Inc. announces plans to merge with HFS Inc. in a $10.9 billion deal that will create Cendant Corp. The next year, CFO Cosmo Corigliano is ousted after the discovery of accounting irregularities at CUC that will force the new company to restate 1997 earnings by as much as $115 million.

Michael Eisner, CEO of The Walt Disney Co., receives compensation of more than $575 million, including $565 million from stock options. The news spurs public outcry, and prompts other CEOs to ask for raises.

WorldCom makes a $30 billion hostile bid for MCI Communications to create a telecom behemoth. The all-stock deal eventually closes at $37 billion, or $51 per share. The deal makes CEO Bernie Ebbers and CFO Scott Sullivan heroes, and sets the stage for the fall of WorldCom.


1998

In a speech at the New York University Center for Law and Business, SEC chairman Arthur Levitt criticizes earnings management and "accounting hocus-pocus."


1999

The European Union launches its single currency, the euro. The currency dips to below a dollar in its first year on the market, but gathers strength over time — commanding $1.30 in early 2005.

The Dow Jones Industrial Average breaks the 10,000 mark for the first time. A month later, it passes the 11,000 mark. (Bubble, anyone?)

The House and Senate agree with the White House to eliminate some restrictions in the Glass-Steagall Act, allowing banking and securities firms to cross industry barriers.


2000

The Year 2000 arrives without a hitch, as widely feared computer havoc fails to occur. Meanwhile, the Fortune 500 alone spends an estimated $40 billion to $50 billion to prevent Y2K problems.

The SEC's Regulation Fair Disclosure, affectionately known as Reg FD, goes into effect. Designed to ensure equal access to company information for all investors, it forbids companies from sharing material information with select groups of analysts or investors without also broadcasting it publicly.


2001

Sparked by the telecom-industry crash and a number of scandals, the U.S. economy begins a recession in March.

Terrorists hijack four planes, crashing two into the World Trade Center and one into the Pentagon, killing thousands in the largest terrorist attack in U.S. history. The New York Stock Exchange re-opens the following Monday.

In a step that marks the beginning of the end for Enron, the company takes a $1.01 billion charge largely connected with write-downs on failed investments; it later discloses a $586 million restatement due to improper accounting. CFO Andrew Fastow will be ousted one week after a $618 million third-quarter loss is announced.


Former Wall Street lawyer Harvey Pitt is appointed SEC chairman. In his first public speech, he pledges a "kinder and gentler" treatment for accountants. Pitt lasts 18 months in the job.


2002

Scandals involving Enron, WorldCom, Adelphia, Tyco, ImClone, Global Crossing, Rite Aid, Xerox, and Qwest Communications, and securities analysts Henry Blodget, Frank Quattrone, and Jack Grubman rock the business community. Revelations of the toga-theme party in Sardinia hosted by Tyco's Dennis Kozlowski inspire comedians.

Congress passes the landmark Sarbanes-Oxley Act in response to the accounting scandals. It also creates the Public Company Accounting Oversight Board, nicknamed "Peekaboo," to regulate auditors.

Arthur Andersen dissolves amid convictions of obstructing justice and reports that staffers routinely shredded documents relating to its audits of Enron. (In 2005, the U.S. Supreme Court agrees to hear an appeal.)


2003

The parade of scandals continues, featuring Ahold, Parmalat, Freddie Mac, Citigroup, JPMorgan Chase, Dynegy, Boeing, HealthSouth, and Lucent.

The IRS cracks down on tax shelters, which have mushroomed in the years since the Tax Reform Act. The agency launches a probe into the way accounting firms market tax services. Two top Sprint executives lose their jobs and Ernst & Young and KPMG are sued.


2004

New York Attorney General Eliot Spitzer subpoenas Aon Corp., Marsh & McLennan, Willis Group Holdings, and others in the first step of an investigation into insurance brokers' practices. He later accuses Marsh of bid-rigging in a civil suit. Marsh settles the charges for $850 million and issues a formal apology in January 2005.

Internet search engine Google goes public to much fanfare from investors hungry for a buzz-worthy stock. GOOG closes up 18 percent, at $100.34.




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