View from the Top
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JIM LEHRER: Finally tonight, corporate responsibility. Joseph Beradino is the latest to fall from the top of a major business; he announced his resignation yesterday as CEO of Arthur Andersen, the accounting firm that had been Enron’s auditor at the time of its collapse. He said he was quitting in an attempt to save his own embattled company.
Earlier this month, we talked to three business leaders about corporate responsibility in the post-Enron age.
GWEN IFILL: Here to discuss the new corporate responsibility proposals are three business leaders: Earl Graves is chairman and CEO of Earl Graves Limited, and publisher of Black Enterprise Magazine; Robert Crandall is the former CEO of American Airlines; and Kay Koplovitz is the chairman of Broadway Television Network and the founder of the USA Networks.
Bob Crandall, President Bush and members of the Senate have said that corporate CEO’s should be held more responsible for the kinds of mistakes that their companies make instead of less responsible. What do you think about that?
ROBERT CRANDALL, Former CEO, American Airlines: Well, I think on the whole that most business leaders in America would agree that any steps taken to make it clear that the CEO is directly responsible for what happens within the company and for the accuracy of the financial statements, would be quite welcome. Certainly when the chairman of American and AMR, I signed the financial statements. I felt personally responsible for those financial statements. Nothing of any significance went on within American and AMR without my signature. This financial statements were carefully reviewed every month and every quarter, and certainly at the end of the year. So there was no doubt in my mind, and I think no doubt in the minds of those who served on American’s board, that those numbers and the operation of the company were my responsibility. So I think what you’ve got here is a circumstance where a few people have used some very complex tax and accounting rules in an inappropriate way. And most of corporate America, I think, which is made up of honest, straightforward people who want to be seen as honest and honorable people, would not resist reasonable rules that make it even more clear than it is today that the CEO is responsible.
GWEN IFILL: Earl Graves, is there room for the federal government– for whether it’s coming from the White House or coming from the Congress– is there room for them to greater… to play a greater role in policing the renegade CEO’s who are not doing a good job by their investors and shareholders?
EARL GRAVES, Publisher & CEO, Black Enterprise Magazine: There is a way to do it, and my sense is, as Bob has already said, that if you can identify things that are not the way they should be in terms of the way the CEO has acted in terms of his… the financial data coming from the company, then that CEO should be held responsible. But having said that, let me just quickly say that I have served on boards for 30 years as publisher of Black Enterprise Magazine. I’ve always advocated protecting shareholders and private and small investors. And I would have to say you unequivocally, I don’t think we could be more much more diligent than we are. So my sense is that yes, there could be more done by government. I think the SEC also needs to be given the resources they need to get the job done. The President clearly hasn’t given his people the resources they’re asking for in this particular instance.
GWEN IFILL: Kay Koplovitz, the President… part of the President’s proposal would call for a lifetime ban on CEO’s holding other jobs at publicly trade companies if they’re found guilty of securities fraud or criminal fraud. Is that something you agree with?
KAY KOPLOVITZ, Founder, USA Networks: I think it’s a good idea to put limitations, especially if someone is convicted of fraud. I think that that would be an appropriate step to be taking. To be charged with it, I don’t think proves the case yet, so I think we have to be careful to distinguish from people who are actually charged and convicted of fraud from those who might be charged.
GWEN IFILL: Do you agree with the other two gentlemen basically that there has been… that there is potential for overreaction, that most CEO’s, most corporate boards are not doing this kind of work and don’t need this kind of federal policing?
KAY KOPLOVITZ: I think that most corporate boards act responsibly today, especially when you see the larger public companies and even the mid-sized companies they apply their resources correctly, and I really think that most people serving on these committees take their responsibilities very seriously. There is a lot of work done by board members and committee members of boards. It is serious business. And I think that, certainly speaking for myself and the boards on which I have served, I believe that everyone on those boards has taken their responsibilities very seriously, and acted in the interest of shareholders. Having said that, I think there are a lot of things that can be done to improve and strengthen boards and their operation.
GWEN IFILL: Bob Crandall, the President didn’t go this far, but Paul O’Neill, the Secretary of the Treasury, and Alan Greenspan of the Federal Reserve, both suggested that perhaps they should… that he should take it father, that companies should be prohibited from fully indemnifying boards and CEO’s from lawsuits from stockholders. Do you think they should have gone that far?
ROBERT CRANDALL: No, I don’t think that would be appropriate. Okay, look, I think the bottom line here is this: That as you know, we live in a very litigious society. So that, for example, a corporate executive or a member of the board who acted with perfect propriety could still be sued, and the costs of defending such a suit can be very, very substantial. And without indemnification, serious people are simply not going to endanger their personal resources. They’re not going to expose their personal resources to the plaintiff’s lawyers.
I think the bottom line here, and I think it’s very important to keep in mind, what we have is an immensely complicated tax code, a tax code so complicated that the Congress itself acknowledges that it does not know what it says. We have, in addition to very complex tax laws, enormously complex and allowable accounting machinations, which Wall Street and the Congress have embraced with enthusiasm. Now, if we’re going to have very, very complicated rules, then it is… it is going to be very difficult to provide the level of transparency that the public would like to have and that the government would like to have.
GWEN IFILL: Earl Graves, if the SEC were given this new kind of power, would it be able to fix some of the problems that Bob Crandall raises — for instance, the idea that it’s what’s legal which has created this problem, the complication of what’s legal which has created many of the problems or allow the problems to occur, rather than what’s illegal?
EARL GRAVES: The answer is yes. I think that Arthur Levitt did an outstanding job when he was chairman of the SEC, and I think that the present person sitting there would want to do that. But my sense is that we’re looking at a very, very unfortunate situation, which has hurt a lot of people, and many of them small shareholders because of what’s happened in the country, and we’re talking two extreme situations. For the most part, my sense is American business means to do the right thing. I’m struck by how diligent or more diligent we have become at the various audit committees and talking to my associates serving on other boards as a result of the Enron thing, and looking at it saying, “how can we even tighten things up and doing it before someone knocks on the door?”
GWEN IFILL: Kay Koplovitz, let’s talk, let’s focus a little bit on the role a little of CEO’s. What is the appropriate role for Congress, the President, government, to spend, to do in enforcing what CEO’s do and what their behavior is. Is there an appropriate role for government?
KAY KOPLOVITZ: Well, I certainly think the regulatory agencies, I think there is an appropriate role to be played. And if there is a way to strengthen the role of the regulatory agency without being abusive or obstructive to getting the job done, I think that that is appropriate to do. Let me say that I think an important thing in all of the investigations that are going on now to multiple companies, it’s appropriate action to be looking with scrutiny, but I think importantly we shouldn’t generate scare tactics among the confidence of the public in the operation of companies, because I think in general, companies operate in the interest of their shareholders. And secondly, I think that we ought to focus on best practices among board members. We ought to look at ways to encourage and regulate, if you need to, companies so that boards really do practice… have good practices for operation. That is to say that they have rotating board members, that they have a self-examination on an annual basis. It’s very important that boards look at their own effectiveness.
GWEN IFILL: So there should be self-policing by the boards of these CEO’s rather than by the government of these CEO’s?
EARL GRAVES: That’s already happening now.
KAY KOPLOVITZ: Of the boards. I think the board members themselves ought to grade performance of the board, so that the boards are looking at their own performance as well as the CEO’s performance.
GWEN IFILL: Someone else was trying to get in there. Who was that?
EARL GRAVES: Well, no, I was saying, Kay, that’s already happening. We will make our rules think that board members just sit there and take the checks. I mean, you know, the audit committee meets with the auditors on a regular basis.
KAY KOPLOVITZ: Of course.
EARL GRAVES: Now, what happened at Enron is you had some bad apples there, and very significant… very significantly so. But my sense would be that we wouldn’t want to make it sound on this show that we just go to the meetings and sit around and read The Wall Street Journal, or Black Enterprise. What we’re saying here is we’re doing the job we have to do, and it can be done better, and we’re willing to have that happen. And if the SEC is going to come in and put in place regulations that are going to make us more accountable, that’s quite acceptable. But I think some of the things the President has proposed are somewhat inappropriate.
GWEN IFILL: And finally, I want to ask Bob Crandall to finish that thought, to tie up that loop, which is, you believe it’s the SEC’s responsibility, not necessarily legislative, to fix these problems, to close these loopholes.
ROBERT CRANDALL: The SEC needs all of the resources that it says it needs in order to enforce the law as it exists today, to make sure that the existing legislation is appropriately enforced. What we now need to do it be sure that we give the regulatory agencies the authority to enforce the rules that exist. And if we can identify particular problems, then we need… then we should pass new legislation. But don’t start off by… with the assumption that everybody is like an Enron. I can tell you that in most corporations, that either the chairman or the chief executive to simply say, “I didn’t understand what was going on,” just wouldn’t wash with the board, and it certainly wouldn’t wash with the shareholders.
GWEN IFILL: Okay. Well, we’ll have to leave the argument there tonight. Mr. Graves, Mr. Crandall, and Ms. Koplovitz, thank you for joining us.