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2002: The Year in Review

Business bust

In an era of pinstripes and handcuffs, savaged investors and enormous bankruptcies, it's tough to find the economic upside.

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published December 29, 2002

In a business year overwhelmed by corporate cheats, CEOs making 500 times worker pay and brutal declines in the stock markets, is there anything positive to be said about 2002? Stick with me. Surely we can find something of merit.

But first, the rough part. This year will be remembered as the year of the snookered investor. A year of lost investor wealth and trust. A year that, over and over again, gave us Corporate America's high-profile "perp walk" of wayward executives from Enron, WorldCom, Adelphia and other companies. Prosecutors paraded these alleged perpetrators of corporate crime before the cameras, sometimes in pinstripes and handcuffs. Their financial shenanigans and ethical lapses dominated business news from January to December.

Then there was 2002's anemic economy, its woes compounded by the aftereffects of 9/11. In Florida especially, tourism suffered. And several airlines were pushed to seek Chapter 11 bankruptcy protection. Many sectors of U.S. industry still are depressed by the vague threat of more domestic terrorism, even though so far, thank goodness, that has not come to pass.

Above all, 2002 brought us three disturbing milestones:

Seven out of the country's 12 largest bankruptcies of the past 22 years happened in 2002. The biggest U.S. corporate bankruptcy ever? WorldCom, in July, with assets topping $100-billion. Scott Sullivan, its former chief financial officer, has been charged by the feds, accused of overseeing a long-running conspiracy to hide operating expenses in order to boost earnings reports. The most recent giant to go under? Conseco, facing a federal investigation of its accounting practices, filed for Chapter 11 just 12 days ago to become the third-largest bankruptcy in U.S. history. This trend alone should have us all asking: What's going wrong?

The year's sharp decline in the stock markets was bad enough. But step back a bit and consider this: The market is about to close its books on the third straight year of overall declines, a trend not seen in more than 60 years.

The worst corporate stock performer of the year was the company long touted as America's best-run: General Electric. GE lost nearly $140-billion of its market value in 2002. For comparison's sake, that loss is nearly double the $75-billion gain of the year's top 10 best-performing stocks combined, according to a Morningstar analysis.

These three dismal events bring us to that fickle thing called consumer confidence. It's down, a lot, from the start of 2002, even though we started this year with the raw emotion of 9/11 so much fresher in our hearts.

Sure, the economy is still sputtering. Yes, so many 401(k) retirement accounts have been plundered that we may see a major demographic shift of retirees returning to the work force. No question, Arthur Andersen's go-along accounting culture and America's see-no-evil corporate directors undermined the credibility of basic accounting that, in turn, devastated investor trust.

Nor should global events be overlooked in 2002, as they too bruised the U.S. economy. The nation hovers on the verge of a war with Iraq, though the conflict's real purpose remains unclear to a large portion of Americans. For all our 14 months of saber-rattling, Osama bin Laden is alive and seemingly unreachable. Even the sender of last fall's anthrax letters remains at large.

And who can forget Enron? This ongoing saga of corporate excess already puts the bankrupt Houston energy company near the top of the Hall of Business Shame. How many other companies can boast names that became a pop verb suggesting "to exploit or betray"? ("I don't want to Enron the people of the United States," Sen. Tom Daschle, D-S.D., said in January.)

More than a year after its collapse, former Enron chairman Kenneth "Kenny Boy" Lay remains essentially untouched by federal prosecutors investigating the most corrupt corporate culture in modern U.S. history. What are they waiting for?

As if Enron weren't enough, Martha Stewart's still unresolved insider trading ordeal this year sure cooled the burner under her simmering potpourri. The retirement package for GE's spoiled super-CEO, Jack Welch, chock full of outlandish pamperings, was revealed in messy divorce proceedings. Maybe Welch, whose veneer quickly wore thin in 2002, should consider a sequel to Straight from the Gut, his self-adoring bestseller. Call it Punched in the Gut.

And let's not forget the Bush administration's financial fix-it team, led by exiting Treasury Secretary Paul O'Neill and now-former Securities and Exchange Commission chairman Harvey Pitt. They badly flunked their assignment to fix the economy and boost investor confidence.

How unlucky a year was 2002? So unlucky that 23 outbreaks of stomach virus occurred on not one, not five, not 10 but 19 cruise ships, most of them based in Florida. So unlucky that the Tampa Bay area saw its last two four-star hotels get bumped down to three-star status by the Mobil Travel Guide.

So let's repeat the question. In a year when Tyco's tax-evading CEO, Dennis Kozlowski, used allegedly ill-gotten gains to purchase such extravagances as a $6,000 shower curtain, what positive news deserves our attention?

Mercifully, there were enough scraps in 2002 to piece together a thin silver lining. Here are 10 events this year that offer some hope of economic recovery, renewal of investor and consumer confidence and, maybe, some lessons learned:

1. For homeowners, U.S. housing prices continued to appreciate at a 6 percent clip. That provided some comfort during these diminished stock market days. The threat of a housing bubble -- and its implied collapse in prices down the road -- continues to be debunked (certainly in Florida) by most of the nation's leading economic experts.

2. The passage of the federal Sarbanes-Oxley Act, the get-tough corporate governance law, is supposed to hold U.S. corporations and the accounting firms that review their financial numbers to higher standards. Now that the law has passed, let's see if it is enforced.

3. SEC chairman Harvey Pitt resigned. So what if Pitt, an apologist for the accounting industry, never should have held the job in the first place? So what if he had a political tin ear? (Doesn't everybody ask for a big raise just when Congress is calling for your head?) Pitt is departing, but he leaves behind an understaffed, demoralized agency. So will Pitt's nominated successor, longtime investment banker William Donaldson, have the right stuff and sufficient independence to police Wall Street (and many of his pals)?

4. New York State Attorney General Eliot Spitzer's yearlong demands that Wall Street reform a culture built on biased analysts and IPO handouts to rich clients have had some results. Spitzer's probe came to a head on Dec. 20, when a preliminary settlement with Wall Street emerged. Investment banks will pay $1.4-billion in fines and agree to buy analyst research from independent firms in the future. Sure, $1.4-billion sounds like a lot, but it's pocket change on Wall Street. And yes, the politically driven Spitzer is far from perfect. But look at it this way. He's doing what the SEC seems starkly unable to handle: Making Wall Street shape up, a bit, after its money binge in the 1990s.

5. The low interest rates available at the start of 2002 are now, remarkably, even lower at the end of the same year. The good news is that borrowing is cheaper than ever. Mortgage rates not seen in 40 years have helped boost home ownership and allowed a refinancing boom that's spurred consumer spending for much of the year. Ditto for lowering credit card and consumer loan rates a bit. The bad news is rates paid on money market accounts and certificates of deposit are abysmally puny. That hurts folks dependent on income from CD interest.

6. My Big Fat Greek Wedding was an unanticipated grass roots success. Don't snicker. The independent, low-budget movie with an unknown writer-star broke every rule in the book, took in more than $200-million at the box office and became the highest-grossing romantic comedy in film history. The business lesson? Huge budgets, giant stars and fancy marketing campaigns can't always beat a simple idea and great execution. And that should cheer up all of us.

7. Fair disclosure rules. A return to tougher GAAP accounting. Greater responsibilities on corporate directors. CEOs personally signing off on, and held accountable for, corporate financial statements filed with the SEC. A rise in shareholder activism. Institutional investors pushing for improvements in those companies in which they have stakes. Every one of these issues gained ground in 2002, probably because there was more need than ever for reforms. Will the momentum remain? Can CEOs temper their greed?

8. Enron's catastrophic demise and bankruptcy in late 2001 rippled across the economy throughout 2002. People got to see that Enron executives did not walk on water but were buffoons, like the rest of us at times. Earlier this month, a videotape was made public that shows former Enron executives joking around at a January 1997 party. In an ironic parallel to accounting chicanery that would destroy Enron, one videotaped skit shows Jeff Skilling, then Enron's president, bragging about making "a kazillion dollars" through "hypothetical future value accounting." This is the same Skilling who, in 2002 testimony before Congress, adopted the so-called Sgt. Schultz "I see nothing, I hear nothing" defense when it came to Enron's accounting gimmicks. Prosecutors already have grabbed former Enron chief financial officer Andy Fastow and should have enough evidence to nab Skilling in 2003.

9. Still more Enron closure: In a symbolic gesture earlier this month, several of Enron's high-profile logos, a tilted E, were auctioned off. A computer store employee bought a 5- by 5-foot stainless steel E that stood guard outside a branch office, paying $44,000. A Houston chemist snagged a similar E for $10,000. And an unidentified guy in a silver Ferrari snapped up the kitschy "disco" version of the letter -- a rotating black E whose colorful neon once illuminated Enron's lobby -- for $33,000. "It's a Christmas present for the person who has everything," he told reporters after the bid. Enron's logo reduced to the novelty status of the lava lamp? This is as it should be.

10. Let's not forget some of the Tampa Bay area's positive business news in 2002. Utility Florida Power Corp. lowered its rates and shaved close to $8 a month off the average price it charges consumers for electricity. After years of fast-rising rates by Florida Power, that cut translates to a raise in this area's disposable income. Then there was the rare 2002 IPO, this one by Tampa's Liquidmetal Technologies, which began trading as a public company in the spring. In a rough stock market, it's still trading below its opening day price. As for two of Tampa Bay's bedrock industries, travel and tourism, both are showing modest signs of improvement in the long wake of 9/11.

Okay, okay. I did not say the 2002 list of positive business news was hot stuff. Take some comfort in a rough year that any good-news list could be assembled.

If there's a single lesson for business in 2002, it's this: Corporate America went haywire with greed, shortcuts and thin ethics sometime in the 1990s. It took the shock of Enron and the subsequent rush of major 2002 bankruptcies, from WorldCom to Kmart, to help publicize some of the root problems in the business world.

Did we learn anything from these mistakes? Will the SEC and other regulators step up and deliver now that smug corporations are at least a bit on the defensive?

I'm not holding my breath. Washington swears it's all for new corporate accountability. But actions speak louder.

Hey, I nearly forgot the most positive thing about the 2002 business scene. It's almost over. Happy New Year.

-- Robert Trigaux can be reached at or (727) 893-8405.

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