Risk & Compliance

Judge OKs Guilty Plea by Lea Fastow

And a former Enron whistle-blower sings one more time. Plus: employer-employee credibility gap; Safeway to consider shorter stints for directors; U...
Stephen TaubJanuary 9, 2004

A federal judge in Houston will allow former Enron assistant treasurer Lea Fastow to plead guilty to one tax violation. Under the proposed deal, according to Reuters, she would serve a five-month sentence.

The pact would seemingly pave the way for prosecutors to work out an agreement with her husband, former Enron chief financial officer Andrew Fastow.

However, even if Lea Fastow accepts the proposal — she has until noon Friday to plead guilty or to agree to stand trial beginning February 10 — U.S. District Judge David Hittner has reserved the right to impose a longer sentence.

According to the Web site of the Houston Chronicle, Hittner said that before giving his final endorsement to any deal, he will require a 60-day pre-sentencing investigation. Such reports typically go into depth into both the crime and the defendant’s background.

Should a judge impose a longer sentence than agreed to in a plea bargain, a defendent would usually have the right either to withdraw the plea or to accept the judge’s decision. The 60-day delay itself, however, could prove even more problematic for Lea Fastow and for a possible deal for her husband.

Lea Fastow’s attorney, Dick DeGuerin, told reporters that the Fastows had been hoping Lea Fastow would be out of jail by the time her husband went in, so that their children would have a parent living with them at all times, according to the paper. “If Andrew, her husband, goes to jail too, we don’t want their children to be without parents,” DeGeurin said, according to reports.

Earlier Thursday, Enron whistle-blower Sherron Watkins said on ABC’s Good Morning America that if Andrew Fastow sings, he can blow open the entire case since he knows all of Enron’s inner workings.

“Sometimes I liken Jeff Skilling to a Mafia boss who used particular words,” she said. “He never said, ‘Go whack Joey.’ He said, ‘Go take care of Joey.’ And now that there have been corporate problems, he tries to say that ‘I just meant, send Joey on vacation.’ Andy’s almost like the assassin who can now tell the government what his orders were or were not.”

Meanwhile, the Chronicle speculates that Rick Causey, the former Enron chief accounting officer whose case seemed stalled on Wednesday, may surrender to authorities as early as Friday in response to a criminal complaint that has been or will be filed against him. The paper stressed, however, that he is not likely to plead guilty.

Many observers have been anticipating charges being filed against Causey since his job title was mentioned in the October 2002 complaint against Andrew Fastow.

“Fastow is in the unique position to open up many doors for the prosecution that to date they may have only been peeking through,” said Jacob Frenkel, a defense lawyer and former securities prosecutor, according to the Chronicle. “Whether there is anything there to see, I don’t know.” (To find out more about the possible consequences of the plea agreements, see “Fastow-ian Bargain?“.)

Employer-Employee Credibility Gap

Warning to senior executives: Many of your employees simply don’t believe you.

According to a Towers Perrin survey of 1,000 U.S. workers, just 51 percent believe their companies generally tells employees the truth; the same percentage believe their companies try too hard to “spin” the truth.

The survey also found that one-third of employees believe the information they receive today is less credible than it was just three years ago.

In fact, most employees think that when it comes to communication, they are a lower priority than other constituencies. For example, they believe their companies communicate more honestly with shareholders (60 percent) and customers (58 percent) than with workers.

Even when they do receive information from senior management, employees are not exactly satisfied; 48 percent agree that they receive more credible information from their direct supervisor than from their company’s CEO. Perhaps that’s a reason employees are more likely to believe information about their pay (64 percent) and benefits (59 percent) than about company direction and business strategies.

“These results reveal a worrisome employer-employee dynamic that should be a wake-up call to any senior executive or leader who will need to communicate with employees in 2004,” said Mark Schumann, a Towers Perrin principal and the leader of the firm’s HR Services business communication consulting practice. “Regardless of the topic, an organization will find it difficult to motivate, engage and retain their most talented employees if their messages are not believed.”

Management credibility also differs depending on the age, tenure, and income of employees.

Two-thirds of workers under 35 believe their companies are forthright in their communications, while only 44 percent of those 50 or older agree with this statement.

As for tenure, 59 percent of employees with less than five years of service with their companies believe their organizations are entirely open and honest in employee communications; that’s true of only 48 percent of those with more than five years of service.

And 57 percent of workers making more than $100,000 per year believe their organization’s employee communications, while only 44 percent of those making less than $50,000 annually share that view.

Safeway to Consider Shorter Stints for Directors

Safeway Inc. is the latest among a growing number of companies that are considering reclassifying their boards.

In other words, all of the directors would stand for election each year. Currently, the supermarket giant has divided its nine-member board into three classes that allow directors to serve as many as three years before coming up for reelection.

The decision is apparently in response to a non-binding shareholder resolution calling for this new policy, which passed at last year’s annual meeting.

Safeway said an amendment to eliminate the board’s classified structure will be put to a shareholder vote at the 2004 annual meeting. If approved, all directors would stand for election or reelection each year beginning at the 2005 meeting.

“The Board’s action shows its commitment to enhanced director accountability, as well as responsiveness to the views of our shareholders,” said Steve Burd, Safeway’s chairman, president, and CEO.

The company noted in a press release that over the past year, its board has adopted a comprehensive set of corporate governance initiatives, including the adoption of director independence standards that are more stringent than those recently adopted by the New York Stock Exchange. “Under these stricter standards, two-thirds of Safeway’s Directors qualify as independent,” it said.

In reality, points out The Los Angeles Times, four of Safeway’s nine board members have close ties to Kohlberg Kravis Roberts & Co., which led Safeway in a leveraged buyout in 1986. In addition, three other Safeway directors are insiders: Burd; former chairman Peter Magowan; and Hector Ley Lopez, who runs a Mexican supermarket chain in which Safeway owns a 49 percent stake.

Safeway also has made personal and business loans to another board member, William Tauscher, prompting protests by leaders of several prominent labor unions and pension funds, according to the Times.

US Bancorp to Expense Options

US Bancorp will recognize compensation expense for the estimated fair value of all granted, modified, or settled employee stock options.

The company added that it will implement this accounting change utilizing the “retroactive method,” which will require all financial statement periods in fiscal years beginning after December 15, 1994 to be restated for all stock-based compensation. The change will be implemented beginning with the firm’s 2003 results.

US Bancorp said the full-year impact of this change is expected to lower earnings by about 6 cents per diluted share in both 2003 and 2002.

Previously, US Bancorp routinely disclosed the potential impact of expensing employee stock options on its earnings in its annual report.

CFOs on the Move

  • Charter Communications, the third-largest cable company, named Michael P. Huseby its new chief financial officer and executive vice president, replacing Kent Kalkwarf, who abruptly resigned last year amid a company accounting scandal. Huseby, who will report to Charter CEO Carl Vogel, will oversee all accounting matters, financial reporting, financial planning and analysis, and information technology.
  • Moody’s Investors Service promoted two senior vice presidents. Brian Clarkson will oversee global structured finance and U.S. public finance; Christopher Mahoney will oversee global corporate finance, financial institutions, and sovereign risk, and will continue to oversee credit policy.

Separately, Moody’s chief financial officer, Jeanne Dering, was also given responsibility for Moody’s information technology group.

  • Peter W. Presperin has been named chief financial officer of Fireman’s Fund Insurance Co. Presperin, who was elected to the Fireman’s Fund board of directors in November, will report directly to CEO Jeff Post. Presperin had previously been president for reinsurance and discontinued operations, a role he will retain.

Presperin succeeds Peter Huehne, who has been named CFO of Allianz of America, the holding company for all North American subsidiaries of Allianz AG. Huehne will report to Jan Carendi, CEO of Allianz of America.

  • Closeout retailer Big Lots named Joe R. Cooper senior vice president and chief financial officer. He most recently served as vice president and treasurer. Cooper will replace Jeffrey G. Naylor, who announced his resignation effective January 30 and has accepted a position as chief financial officer with a Fortune 200 company that hasn’t yet made the announcement.
  • Canadian natural gas utility and oil pipeline operator Terasen Inc. named Gordon Barefoot, who had been a senior vice president, as its new chief financial officer. In addition, David Bryson was promoted to treasurer from assistant treasurer. They replace Milt Woensdregt, who held both posts and was leaving “to pursue other opportunities.”
  • Novatel Wireless Inc., a developer of wireless technology for mobile devices, announced that chief financial officer Melvin Flowers is leaving to join Microsoft Corp. and that treasurer Dan Halvorson has been appointed acting CFO.
  • Biotechnology firm Arena Pharmaceuticals Inc. announced that chief financial officer Joseph Mooney has resigned. The company did not give a reason for Mooney’s departure, but said that vice president for finance Robert Hoffman will continue to serve as its chief accounting officer.
  • Gibson Guitar Corp. named Anthony Crudele chief financial officer. He will oversee all strategic direction and the financial culture of the musical-instrument giant. Crudele comes to Gibson from Xcelerate Corp, an IT professional services firm.