Corporate greed rears head again

GROUND FLOOR/Sheila O'Flanagan: As the tide turns in every aspect of market and business life, so we are seeing a bit of a backlash against the very thing that was so close to our hearts during the shock of the Enron, Tyco and WorldCom implosions - the issue of corporate governance.

At the time of the revelations about these companies, it was clear that senior management (quite often one or two people) ran these companies as personal fiefdoms, blurring the distinction of what belonged to the company (and therefore its shareholders) and what was their own.

Following the outrage that ensued when some of the worst practices came to light, regulators moved in to try and restore investor confidence by creating new governance guidelines and regulations. It was meant to make us feel better about investing and more certain about the way in which companies in which we had a shareholding were run so that we were right to believe the glossy annual reports again.

In the case of WorldCom, which filed for bankruptcy and has re-emerged as the telecommunications company, MCI, the courts approved an official to oversee its emergence into the real world again. Mr Richard Breeden is a former chairman of the Securities and Exchange Commission (SEC) and so should be well-placed to comment on governance.

His recommendations - all 78 of them - are made solely for MCI but the US authorities say it behoves all companies to consider implementing them.

They include some fairly sensible ideas such as that the chief executive shouldn't sit on audit, governance, compensation and risk management committees and that directors and auditors can only stay in office for 10 years.

They also, less usefully perhaps, limit the targets for annual dividend payments and suggest setting up a facility for shareholders to email the board and propose resolutions (I'm not against shareholders being able to contact the board; I just have my doubts as to the benefit of being able to zap disgruntled emails every morning).

On the plus side again, they propose that no executive can get more than $15 million in annual compensation without a shareholder vote. Can't see many disagreeing with that somehow.

Fearful, I guess, that regulators will seize on Mr Breeden's recommendations with increased zeal, spokespeople for various corporations are musing aloud about the fact that they will spend more time filling in paperwork than getting out there and competing for business if any of these proposals are ratified for the wider corporate population.

Irritatingly for Mr Breeden, the current incumbent of the SEC, Mr William Donaldson, has suggested that entrepreneurial enthusiasm could be dampened by these rules and Federal Reserve chairman Mr Alan Greenspan commented that corporate investment could be held back because of them.

So, basically, there was something very wrong in US corporate culture, it caused a shockwave that engulfed most of the capitalist world and demands for better practice. But as soon as plans are put together, people in business rush to tell us why it can't be done and issue dire warnings about it not being worthwhile setting up in business if you can't run with the wind.

I have some sympathy but not a lot. Many of the recommendations made by Mr Breeden are perfectly sensible. Training employees in the areas of ethics and accounting is a good thing.

All companies should have a non-executive chairman to review the performance of the chief executive and the board. It is extremely difficult for chief executives (because of the nature of the beast) to admit to making mistakes or to give up on pet projects even when they may not be in the best interests of the company. (Think Bertie Ahern and Abbottstown.)

Setting up systems where none are in place may be time consuming and expensive initially but don't try telling us that the best run companies aren't ultimately the ones that do best for the individual shareholder. And if a poorly run company manages to shine spectacularly for a few months and make vast profits for the executives concerned before disappearing in a puff of smoke, then we have learned nothing. Fear and greed will always be with us.

For a while, fear was the key. Now it looks as though greed might be gaining the upper hand again.

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Of course, sometimes we get what we want by way of consumer information and then realise it's far too much effort.

Years ago, a telephone bill simply told you how much you owed and that, pretty much, was that. These days my household telephone bill is a five page double-sided document with a breakdown of calls in such detail that I can't actually be bothered to read them most of the time.

All I see is a vast swathe of numbers which makes me wonder how much time I spend in the home office actually working instead of chatting to my friends.

I suppose it'll be useful the day I need to prove that I really called someone the day I said I would but, since I could just go online and check the statement, I wonder if it wouldn't be easier to simply post me a one page bill and tell me to check the itemisation on the Net if I really need to know.

My mobile bill is equally transparent and equally long. Yet telecom companies complain about costs. As an occasionally ethical-tree-hugging person I fear for the rain forests if I continue to use the phone.

And why can't the telephone directory be delivered by email? I do realise that not everyone has a computer but surely you could check a little box on your phone bill to say that you'd like to get it by electronic post in future?

Wouldn't it be cheaper than producing a big fat book which most people hardly ever use?

If Eircom could save money in the production of phone books and less detailed bills, then maybe call prices could come down again and I wouldn't feel guilty about talking instead of working.