Risk & Compliance

Paper Jam: Xerox Reassigns Treasurer

Tayler headed to Canada; report says he could face charges here in the U.S. Plus: Fastow indictment said to be imminent, employees say managers too...
Stephen TaubSeptember 30, 2002

Xerox Corp., which is facing a criminal probe of its accounting practices, on Friday reassigned its treasurer to the company’s unit in Canada.

The copier company’s management said Gregory B. Tayler, a Canadian, has accepted a position at Xerox Canada, effective immediately.

Chief financial officer Lawrence A. Zimmerman will assume the role of treasurer in an acting capacity until a new treasurer is named.

Tayler is one of a number of Xerox executives who have been named in shareholder class-action lawsuits.

Xerox spokeswoman Christa Carone declined to comment on whether the move was related to any of those suits, according to wire service reports. She reportedly said Tayler was successful in refinancing the company’s credit line and has extensive experience in the company’s Canadian operations.

“Greg is moving into a role that brings him back home and leverages his vast expertise in Xerox’s Canadian business,” Carone told the Associated Press.

Indeed, after he joined Xerox in 1991, Tayler, a Canadian citizen, held several senior finance positions in operations and planning in Xerox Canada. He then moved to the finance department at the company’s headquarters in Stamford, Connecticut, where he held the position of controller. Last year, Tayler was promoted to corporate treasurer.

Still, the reassignment of Xerox’s onetime controller will surely raise some eyebrows. As controller, Tayler was likely in charge of the company’s accounting. And as CFO.com reported last week, the U.S. Attorney’s office in Bridgeport, Connecticut, is currently investigating Xerox’s past accounting practices. While the nature—or targets—of the investigation remain unclear, it appears that the criminal probe covers years when Tayler was overseeing the company’s bookkeeping.

On April 11, Xerox concluded a settlement with the Securities and Exchange Commission related to accounting matters that had been under investigation since June 2000.

Under the terms of the settlement, the company restated its financials for the years 1997 through 2000 and adjusted its previously announced 2001 results. It also paid a $10 million fine.

According to a Wall Street Journal report last week, the SEC told certain Xerox employees, including Tayler, that they could face civil charges for their alleged roles in artificially inflating the company’s revenues.

Xerox has already removed Tayler’s name and biography from the list of corporate officers on its home page.

(Editor’s note: Xerox’s next treasurer might look at the CFO PeerMetrix interactive scorecards to see how rival Pitney Bowes manages AP/AR.)

FT: Fastow Charges Expected Wednesday

The Feds are closing in on former Enron chief financial officer Andrew Fastow.

Fastow could be charged as early as this Wednesday for his alleged role in the energy trader’s accounting scandal, which led to the company’s bankruptcy filing, according to ft.com, the Web site for the Financial Times, citing lawyers involved in the case.

Fastow’s freedom has seemed to be in serious jeopardy since last month, when Michael Kopper, who worked closely with Fastow, pleaded guilty to two counts of conspiracy in U.S. District Court in Houston.

As CFO.com reported then, the court documents submitted by the SEC and the Justice Department never cited Fastow by name. But the SEC and DOJ did provide an alarming amount of detail about the alleged manipulation of the company’s finances by the figure the documents simply call “The Enron CFO.”

The criminal charges are expected to accuse Fastow of serving as the architect of the off-balance-sheet partnerships that brought the company down, according to ft.com.

Prosecutors are expected to charge Fastow with accepting kickbacks from Kopper for his role in Chewco, the controversial partnerships set up by Fastow in 1997 to help keep some of Enron’s assets and liabilities off the company’s balance sheet.

Kopper has admitted he received about $1.5 million in “management fees” for running Chewco. He claims he shared the payments with Fastow, his boss.

The Underfunded Pension Fund Crisis

If you live by the equity markets, you die by the equity markets.

This is what a large majority of investors have painfully learned in the past couple of years, as the great stock market bubble of the late 1990s burst. That bursting has dramatically reduced the value of many investors’ portfolios, including 401(k) retirement plans.

It’s not surprising, then, that defined benefit (DB) pension plans are also suffering during the market downturn. According to Merrill Lynch, a number of very large companies will have to make multi-billion-dollar deposits into their pension plans to shore up this shortfall. That shoring up will likely cut into earnings and cash flow.

Altogether, 346 companies in the S&P 500 index offer DB plans. Merrill Lynch analysts estimate that the DB plans of 98 percent of those companies will be underfunded at the end of this year.

On aggregate, the pension funds of these 346 companies are expected to be underfunded by $640 billion—or 69 percent of the total assets in their pension plans, according to a published account of the study.

Excluding postretirement funds, DB plans at these companies are underfunded by $323 billion.

At the end of 2001, the DB plans of the S&P 500 companies were actually overfunded by $500 million.

And, at the end of 2000, the funds were overfunded by a staggering $215 billion.

The situation only figures to worsen. As the S&P 500 heads to its third straight double-digit loss—it’s down 28 percent so far this year—S&P 500 companies are assuming that their long-term returns on pension fund investments will be 9.3 percent, according to one published account that cities Adrian Redlich, director of Merrill Lynch’s global analytic and thematic research.

Merrill’s estimates are based on the assumption that the actual return on plan assets will be a negative 10 percent this year, and that company contributions and benefits paid this year are in line with 2001 payouts, according to the report.

The companies with the biggest underfunded DB plans include some real marquee names, including GM, Ford Motor, IBM, SBC Communications, and Boeing.

Unlike a defined contribution plan, a DB plan guarantees a certain payout to retired employees.

Most Employees Say Scandals Threaten Economy

Is the recent rash of accounting scandals an isolated event involving just a few bad apples, as President Bush suggested in a speech this summer?

Not according to the rank and file of Corporate America. Roughly 91 percent of employees at U.S. public companies consider the recent corporate accounting scandals to be a serious problem for the nation’s economy, according to a recent survey conducted by Fleishman-Hillard Inc., a public relations firm.

More than 80 percent of the respondents said “executive greed is driving corporate wrongdoing,” while 60 percent believe that the stock market forces companies to focus on short-term profit and performance, which in turn encourages dishonest corporate accounting practices.

In fact, 72 percent felt Corporate America was focused more on meeting stock market demands than customer needs. That said, 41 percent of the surveyed workers said that investor demands have lately reduced their own companies’ focus on meeting their customers’ needs.

Despite the current overall environment of concern regarding corporate governance, corporate earnings, and the economy, it is not clear that companies have improved their communication with employees.

Just 39 percent of the survey participants agreed or strongly agreed that their company is communicating more financial information to them now. Around 40 percent either disagreed or strongly disagreed with that statement.

Yet despite the lack of communication from their bosses, many employees still feel they can make a difference at their company.

More than three out of four employees (77 percent) agreed with the statement, “Your performance as an individual affects the value of your employer’s stock.”

Interestingly, nearly half of the respondents agreed or strongly agreed that they now feel more encouraged to raise questions about their company’s corporate accounting practices than they did before the topic became a national concern.

“Employees have been motivated by the high-profile problems of a few companies, and by the overall economic and financial market concerns, to take a hard look at the organizations they work for and their leaders,” said Don Etling, co-chair of Fleishman-Hillard’s internal communications practice. “It is clear they are holding their management, and their CEOs in particular, more accountable. But the results of this survey also indicate that employees believe they can make a positive impact through their everyday activities at work.”

Other findings from the survey:

  • Just 6 percent of respondents is considering employment change due to either their employer’s current financial results or reputation for corporate accounting practices.
  • Of those 42 percent of survey respondents who currently do not own options to purchase their company’s stock, 56 percent expressed a desire to have stock options, including more than half of the nonmanagerial employees surveyed.
  • More than 7 out of 10 (72 percent) respondents felt that the information they receive from their employers about financial results is “adequate to very comprehensive,” while only 6 percent believed that this information is “totally inadequate.”

Fleishman-Hillard conducted the survey of a randomly selected sample of 200 employees of publicly held corporations in 40 states during the period from July 27 to August 7, 2002.