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| On Trial |
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Investigated, fined and prosecuted — the world's top business leaders have rarely been so widely reviled. Will corporate reform in 2003 help us learn to love CEOs again?
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By JENNIE JAMES |
Posted Sunday, Dec. 8, 2002; 2.02 p.m. GMT
Miss Piggy and Kermit behind bars? It sounds unlikely, but as 2003 begins, Thomas and Florian Haffa — the brothers who once ran the German TV rights entertainment group EM.TV & Merchandising, whose properties include the Muppets — are expected to still be in court in Munich, charged with falsifying EM.TV's balance sheet and misleading investors. In December 2000, the Haffas issued a profit warning — not long after assuring investors that EM.TV would hit its 2000 profit target of €268 million. Instead, 2000 losses totaled €1.4 billion.
The Haffas' trial, which began in November, is one of a slew of cases involving alleged corporate misdeeds that will be in the dock in 2003. In March, Bank of France governor Jean-Claude Trichet is set to go to court for his alleged participation in the publication of false accounts by Crédit Lyonnais in 1991-1992. No later than June, former Tyco CEO Dennis Kozlowski is set to face charges in connection with the alleged theft of up to $600 million from the U.S. manufacturing giant. And then there's the scandal that started it all: Enron, whose former CFO Andrew Fastow has been indicted on 78 counts of wire fraud, conspiracy, money laundering and obstruction of justice. A pretrial hearing is set for January: Fastow has pleaded not guilty.
If 2002 was the year the world fell out of love with CEOs, then 2003 will be the year regulators strive to restore corporate credibility. Investigators and lawmakers on both sides of the Atlantic have been frantically proposing and passing corporate governance and accounting laws, hoping to persuade angry, scarred investors to get back into the market. But investor faith won't easily be restored. The rash of post-Enron guidelines and regulations has sparked confusion and squabbling over how best to improve corporate governance.
Some large British investors advocate self-regulation. "Legislation tends to be highly prescriptive and inflexible," says Chris Baldry, manager for the voting issues service of the U.K.'s National Association of Pension Funds. "I'm not sure more regulation is the answer." So-called voluntary best practice places a moral obligation on auditors and boards to behave properly, a concept that some retail investors might find hard to swallow.
In response to the corporate scandals, the U.S. Congress passed the Sarbanes-Oxley Act, a list of corporate governance rules. The European Commission is set to follow with its own version. The probable result: horse trading between Europe and the U.S. as each side seeks exemptions from the other's rules. A pragmatic approach — but hardly one to win back investors.
With reporting by Helena Bachmann/ Geneva, William Boston/Berlin, Andrew Rosenbaum/Amsterdam and Adam Smith/Paris
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