Commentary ––

Corrupt Down To Our Toes

By William A. Collins

Figures don’t lie,

But liars figure.

As one who majored in accounting, I was always struck with the professionalism of that trade. The theories we studied seemed sensible, and the goal was always to construct an accurate representation of the enterprise. Later, in MBA school, it was much the same. How does a business make the most of its resources? Although I never pursued a career in either field, those lessons proved valuable in government later on, and those professions always seemed important and noble.

Then when the Financial Accounting Standards Board (FASB) moved to Norwalk, I felt particularly nostalgic. Here was the watchdog of the industry for the whole nation settling in my hometown. I visualized them working late haggling over fine points of evaluating inventory, stock options, and goodwill, all for the benefit of the public.

Right! What a naif! It turns out that FASB, the Securities and Exchange Commission (SEC), the Connecticut General Assembly, Congress, and all the various banking watchdog boards spend most of their time sleeping. Their real job is to hem and haw while the guys in the dark suits steal us blind.

Now, after the savings and loan collapse, Enron, Adelphia, Tyco, and Global Crossing, FASB still doesn’t see any cause for alarm. The SEC, too, thinks that minor tinkering ought to take care of things. And Congress, ever mindful of campaign contributions, busies itself looking for individual bad apples, rather than scouring the whole rotten barrel.

Nor is the Connecticut General Assembly so different. It continues to stand aside as the vultures of electricity, banking, and communications deregulation flock to our state to browse. Neither does it crack down on the highly paid influence peddlers who seek to profit from our state pension funds.

More activist government intervention is sorely needed. Take the Stanley Works. Congress, in its wisdom, has set up loopholes so that such a corporation can move its official residence from New Britain to Bermuda and escape some $30 million a year in federal taxes. The SEC, in turn, has rules that allow more than half of the resulting windfall in stock value to be paid to the corporation’s top executives. Then FASB allows the accountants to report all this in a way that investors have a hard time deciphering.

There is reluctance by many to call such a system corrupt. Corruption is a term reserved for mayors of Waterbury and Bridgeport who work out two-bit kickback scams that consume vast resources of state and federal prosecutors. Not to mention consuming the valuable reporting time of local newspapers and TV stations.

But our nation’s chief corruption today is not in city hall at all. It’s on Wall Street. Business Week estimates that in 1980, the CEOs of large corporations were paid 45 times as much as their nonsupervisory workers. By 2000 that multiple had reached 458, most of it through stock options.

What we have done is contrived a system where corporate executives are out of control. They appoint their own boards of directors, set their own pay, and base their compensation on stock value. That makes it important for them to cook the books, which the accountants let them get away with, and the watchdog agencies ignore.

Capitalism has gone berserk in this country, and investors are at last beginning to get the drift. Then we wonder why much of the world doesn’t admire us.

(Columnist William A. Collins is a former state representative and a former mayor of Norwalk.)