Monday: June 9, 2003

"June 9 (Bloomberg) -- A report by WorldCom Inc. faults former Chief Executive Officer Bernard Ebbers for the $11 billion accounting fraud that led to the company's collapse, saying he pressured subordinates to meet unrealistic projections and was aware of 'financial gimmickry' used to inflate sales.

'The fraud was the consequence of the way WorldCom's chief executive officer, Bernard Ebbers, ran the company,' says the report prepared by former U.S. Securities and Exchange Commission enforcement chief William McLucas and filed in U.S. bankruptcy court in New York."

I wrote, but never published, the following article dated almost one year ago. Its time has come.


Written to be published June 26, 2002

FINANCIAL SCANDALS AND BOARDS OF DIRECTORS.

Boards of Directors of public companies are supposed to do a multitude of things:

In order to do this they have all kinds of committees which are supposed to meet regularly and to pass on the legitimacy of the doings of the Board of Directors and the executives of the company.

If you want to know the names and functions of the most common committees email me because I am not about to burden this article with that stuff now.

In actual fact all the Boards of Directors I sat on (15 different kinds) were ludicrous and pitiful jokes.

NOT A SINGLE ONE OF THEM FULFILLED THEIR OBLIGATIONS TO SHAREHOLDERS OR THE EMPLOYEES (THE FORGOTTEN ONES).

HERE ARE SOME EXAMPLES OF THE LUDICROUS BEHAVIOR OF SOME OF THE BOARDS OF DIRECTORS ON WHICH I SAT AND ABOUT WHICH I HAVE PERTINENT AND IN DEPTH KNOWLEDGE:

 

I asked Bernd Koken what the fine print said (it could not be read more than 3 feet away). He said it was footnote that in the financial reorganization the Reichman family (who were rapidly going bankrupt and the major stockholders) would be paid a special dividend of $250,000,000. I asked about the public stockholders: "would they get a special dividend?". The answer Koken gave me was "No, they would not". I moved the rejection of the financial plan. Several weeks later I was asked to resign from the Board of Directors of Abitibi- Price since they would not put me up for renomination anyway. I refused to resign and there were no more Board meetings until my term expired.

I could go on for several more hours and another 100 or so examples but by now you must get the point. Why, oh Why, is ANYONE surprised by what is going on right now in American industry.

Fraud in American industry is as American as apple pie.

American industry has been fraudulent for some 250 years and why should it change now?

Find that hard to believe?

Go read :"THE RADICALISM OF THE AMERICAN REVOLUTION", Gordon S. Wood, Alfred A. Knopf, New York, 1992; Pages 229ff. Fraud was a landmark of the revolutionary and post revolutionary era!

It is a land mark of the 20th and 21st centuries as it will be for centuries to come!

HOW CAN THE EXECUTIVES GET AWAY WITH FRAUD TO THE EXTENT THEY DO?

SIMPLE: Nobody but nobody dares to ask them questions! Most (but not all) Directors are rubber stamps. If you ask penetrating or embarrassing questions the management makes sure you get thrown off the board!

An independent director is an oxymoron!

Email me about anything that interests you and I promise an answer and who knows, we both might enjoy the exchange!