The Economy

A Man, a Plan, a Root Canal

President Bush looks to put some teeth into accounting statutes. Plus: heroes at WorldCom? And: small business owners reveal their turnoffs.
John GoffJuly 12, 2002

Internal auditors as heroes? President Bush as tough on business? The WorldCom’s turned upside down.

GOOD WEEK

1. Cynthia Cooper, Glyn Smith (WorldCom)

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It’s hard to believe anybody can come out looking good in the WorldCom fiasco. But apparently, Cooper and Smith (one and two in WorldCom’s internal audit department) uncovered the bookkeeping shenanigans at the telco. Reportedly, CFO Scott Sullivan asked the pair to delay their investigation into WorldCom’s accounting treatment of line costs. The two said no, and eventually unearthed expenses masquerading as capital investments. Their persistence led to WorldCom CEO’s stunning announcement that the telephone company would be lowering its previously stated earnings for 2001 by $3 billion.

Once, I had a $22 long-distance bill.

2. John Sidgmore (WorldCom)

A poet once wrote: “It’s hard to believe anybody can come out looking good in the WorldCom fiasco.” Wise words, but Sidgmore, who’s been the WorldCom CEO for all of two months, has inherited a royal mess at the company. And so far, he’s proven his mettle.

Granted, Sidgmore has worked at the teetering telco for a fair amount of time. Thus, it may turn out that he was in someway involved with the accounting treatment that sent the company’s share price into penny stock land.

But Sidgmore won high marks this week for his appearance before the House Financial Services Committee. For starters, he actually answered questions — unlike Bernard Ebbers and Scott Sullivan. What’s more, the CEO came across as rational, calm, and thoughtful — traits that are not exactly in oversupply on Capital Hill these days. When asked to decry the actions of former boss Ebbers, Sidgmore declined, stating that Ebbers hasn’t been convicted of anything yet.

Sidgmore also endured the endless browbeating of our elected officials, who acted as if they didn’t know the difference between write-downs and Hugh Downs.

Of course, it’s possible that Sidgmore will ultimately be revealed as a villain in the passion play known as WorldCom. But on Tuesday, he stood tall.

3. President Bush

The President took a lot of flak for his speech on Wall Street on Monday. And perhaps the chief executive didn’t do everything he could to rein in corporate abuses. But a number of his proposals — even if borrowed — made sense, and the President seemed genuinely committed to restoring confidence in the capital markets. As Christian Bartholomew, a securities lawyer noted, “The President is putting his political capital behind all of the issues, which means corporate accounting problems have become mainstream.”

If you don’t think Bush’s plan could inflict some pain on wrong-doers and lawbreakers, consider the muted reaction of the 1,000 or so executives who attended the speech, most of whom acted as if they had root canal surgery scheduled for the next day. That speaks volumes.

BAD WEEK

1. Health-care Insurance Providers

In a surprising finding we reported this week, 41 percent of small-business owners have a favorable opinion of the accounting industry. Those numbers came from a recent survey conducted by The Network of City Business Journals. Only 12 percent reported a negative opinion of accountants.

But the topper? Small-business operators said their least favorite sector was the health insurance companies, with a paltry 17 percent favorable rating.

Another number should explain that 17 percent figure: according to surveys recently published on CFO.com, health-care benefit costs are expected to jump about 22 percent next year. That sort of boost is guaranteed to annoy small-business owners.

Interestingly, the small-business operators in the survey ranked the accounting industry above some other prominent sectors. The sectors with low favorable responses included the airline industry, the telephone industry, and the legal industry. Respondents said they didn’t like beets all that much, either.

2. The Group of Seven (the other ones)

As CFO. reported this week, Standard & Poor’s announced it is adding seven new companies to its bellwether 500-stock index. Rather than change the name to the S&P 507, the ratings specialist decided to remove seven companies from the benchmark. Interestingly, all seven of the exiters were non-U.S. corporations.

Those getting the boot included Royal Dutch Petroleum, Unilever, and Nortel Networks. In addition, officials at the S&P announced they will no longer serve Swiss cheese at their swanky cocktail parties, and have prohibited the sale of danish in the company commissary.

3. Mike Rake

On Thursday, the international chairman of KPMG slammed proposals for a new U.S. regulatory body that will oversee and monitor auditors both in and outside the United States.

Under the bill, an accounting overseeing board would be created that would be able to establish standards for auditors as well as investigate and discipline them. Even auditors based outside of the United States would be subject to the board’s oversight — if they have clients that must meet SEC requirements.

That would include an audit client whose primary exchange is outside the States but whose secondary exchange is in the States.

“I think it has been demonstrated that the U.S. does not have the right answers to all these problems,” Rake told the Web site of the Financial Times, referring to the U.S. accounting scandals as well as the Sarbanes bill. “Forcing the U.S. solution on the rest of the world is not acceptable.”

To be fair, Rake’s quote may have been taken out of context. But right now, the last thing the head of an accounting firm should be saying is that a proposal to bring more oversight to the accounting industry is “not acceptable.” Even if Rake has valid arguments, the phrase “not acceptable” makes it sound as if he has some choice in the matter. If the Sarbanes bill passes, he won’t.

4. Congressional Legislators

Do lawmakers actually ever think for themselves anymore? This past week, with the possible exception of John McCain, nary a representative nor a senator showed up on the television who wasn’t spouting some sort of reactionary, knee-jerk, party-line drivel. Really, is Soundbyte now an official language?

If politicians really want to know why Americans have such a low public opinion of politicians, they might want to consider their behavior this week. Rather than speaking thoughtfully on the crucial issue of restoring faith to the U.S. capital markets, most politicians came across as snarling attack dogs for their respective party leaders. On one show, one ranking Republican went as far as to say that journalists who question whether Harvey Pitt should remain on as chairman of the SEC probably don’t even believe in the free market system.

He also said that journalists who don’t eat pork rinds probably don’t believe in pigs.