seek higher ground after scandals
By Randy Southerland, Contributing Writer
Atlanta Business Chronicle
July 5, 2002
wave of corporate scandals ranging from off-balance-sheet
deals at Enron Corp. to overstated profits at WorldCom
Inc. might make it seem that "business ethics"
has become an oxymoron.
reality, however, rarely — if ever — have
directors and top executives been focused so keenly
on propriety, local observers say.
institutional investors have long held management and
the directors of the companies in which they invest
to your benefit to invest in companies that follow three
basic guidelines — independence, transparency and fiduciary
responsibility," said Joel Koblentz, an independent
adviser on corporate governance to boards and executive
scandals across the country have brought into question
just how dedicated many corporate leaders are to those
— large and small — have cause to do a bit
of self-examination in the light of the Enron case,"
said John Knapp, president of the Southern Institute
for Business and Professional Ethics. "They need
to ask themselves if the organization may be vulnerable
to many of these same problems."
few question that most executives of public companies
are conducting business in an open and above-board manner,
most also know the landscape for business has changed
and it will take time to recover.
credibility of corporate leadership is at a low,"
said Joe Goodwin, president of the Goodwin Group, a
retained executive search firm specializing in boards
and senior leadership. "People are saying, `I don't
want anyone that is tainted in any way.' "
said companies and their boards are being more careful
when selecting leaders.
don't want to have — particularly at a CEO level
— any kind of surprise," Goodwin said.
for executive positions who would have been hot properties
six months ago have fallen out of favor because they
worked for companies that have been tainted by scandal,
have ample evidence that ethical behavior is more than
just the right thing to do — it also affects the
bottom line. Following its recent conviction for obstruction
of justice, one-time accounting giant Arthur Andersen
LLP is on the verge of extinction. Other companies have
suffered significant drops in stock prices due to allegations
of impropriety. Tyco International Ltd. (NYSE: TYC),
whose former CEO, Dennis Kozlowski, was indicted for
alleged sales tax evasion, was trading recently at about
$14 a share, well off its 52-week high of $60.09. Adelphia
Communications Corp., which had a 52-week high of $42.39
a share, was trading at less than $1 a share recently
and has filed for bankruptcy protection. The nation's
sixth-largest cable television operator disclosed that
the family of founder John J. Rigas had engaged in $3.1
billion of off-the-books borrowing.
it seems, is being held to a higher standard of ethical
said investors are directing their capital into markets
where both risk and opportunity can be quantified.
shareholders have been moving away from companies that
have complicated financials and might have weak executive
oversight," said Martin Tilson, an attorney with
Kilpatrick Stockton LLP. "There's going to be a
lot more emphasis on the CEO knowing what's going on
— even to the extent of signing the financial
documents, rather than passing the responsibility down
the chain of command."
added that companies going public in the near future
will emerge into a new, more regulated world and will
have to adjust accordingly.
what form that new environment takes will be determined
by one or more of the 50-plus bills now making their
way through Congress.
regulations concerning the major stock exchanges also
are taking shape. And the Securities and Exchange Commission
is looking at the rules governing executive compensation
through stock options. Under current rules, companies
can disguise the true cost of stock options in their
reports to stockholders.
also are likely to be changes in the composition of
boards. Gone are the days when few demands were placed
on directors, and the position was considered almost
honorary. With rates for directors' and officers' liability
coverage rising as stockholder lawsuits multiply, many
potential directors are passing up the opportunity because
of the risk involved.
said boards are likely to become smaller, but directors
will have greater expertise. They will have to spend
more time working on board issues, and compensation
is likely to increase — perhaps to as much as
twice the current rate.
not only going to have to be competent and willing to
share their expertise, but they're going to have to
be experienced in dealing with these kinds of [financial
and ethical] issues," Koblentz said. "There
just aren't many people who fit that description."
though scandals have multiplied, Atlanta companies have
remained a bright spot on the business map. So far,
they have been largely untouched by the problems plaguing
Enron, Tyco International and others.
Atlanta, we've been pretty lucky," Koblentz said.
"We haven't had any company — other than
Mirant — be questioned about its transactions."
firms, such as BellSouth Corp. and Delta Air Lines Inc.,
have been characterized by either long-serving leadership
or new leaders who have been carefully chosen through
a succession-planning process.
had very solid management and very open management,"
Koblentz said. "I attribute that to [the fact that]
the people who are running these companies are also
community leaders. They care about more than what's
going on in their own companies."
bottom line for business is the quality of individual
leaders matters most.
problem with all this is you can't legislate behavior,"
Koblentz said. "If somebody wants to figure out
how to get around the rules, they can always do so.
What we're looking for is some way to modify the behavior
of these boards."
2002 American City Business Journals Inc.