Levitt's message to CFOs: Do the right thing

TRIGAUX E-mail: Click here Archive

© St. Petersburg Times
published March 19, 2003

At a time when the public can't decide if "CFO" stands for chief financial officer or chief fraud officer, Arthur Levitt travels the country urging corporate finance executives to show more backbone.

"Set the standard," says the former chairman of the Securities and Exchange Commission. "Provide moral and ethical leadership. Bring a dose of reality to your hard-charging CEOs."

A one-time drama critic turned Wall Street insider turned thoughtful federal bureaucrat, Levitt is now out pitching his own "I have a dream" speech to the nation's financial community. Restore the trust of investors, he implores his audience. Stop looking for loopholes or smoke and mirrors to make corporate financial numbers look better than they really are. Start showing shareholders exactly how companies are performing. And while you're at it, show some spine and resist pushy CEOs who might demand some fudging of figures.

Above all else, he insists, resist the "culture of seduction" in corporate boardrooms that tends to turn directors into toadies of favor-dispensing CEOs.

For the record, Levitt ran the SEC from 1993 to early 2001, making him the longest serving chairman in the agency's history. And he ran it before Harvey Pitt became SEC chairman and turned the agency into the laughingstock of securities regulation.

On Tuesday, Levitt brought his bully pulpit to the Westin Innisbrook resort in Palm Harbor where more than 300 CFOs -- chief financial officers, just to be clear -- had gathered for a conference on their beleaguered profession.

How beleaguered? The 3-day conference was sponsored by CFO magazine, a monthly with an unfortunate habit of celebrating on its cover the skills of high-profile chief financial officers -- just before their spectacular downfalls.

In 1998, CFO (partnering with the now defunct and disgraced Arthur Andersen accounting firm) awarded WorldCom CFO Scott Sullivan its CFO Excellence Award.

In 1999, CFO and Andersen gave the same award of excellence to Enron CFO Andy Fastow. And in 2000, the excellence award went to Tyco International CFO Mark Swartz.

These three CFOs should have received excellence awards for cooking the books, instead.

Sullivan was arrested last summer and indicted on criminal fraud charges. He has pleaded innocent and still has plans to complete a 24,000-square-foot megamansion in Boca Raton.

Fastow really should star in a video called CFO's Gone Wild for assembling self-serving partnerships with Enron that netted him at least $30-million at shareholder expense. He pleaded innocent in November to 78 counts of fraud and money laundering, and is accused of being the mastermind of the fraud that led to the Houston energy trading company's collapse.

And Swartz? The former CFO of Tyco was indicted last fall on charges of stealing $600-million from the company. Last month, a federal grand jury indicted him allegedly failing to pay federal income taxes on a $12.5-million bonus he received in 1999. He has pleaded innocent.

With CFO magazine role models like these, who needs crooks?

Which was exactly former SEC chairman Levitt's lament Tuesday to a standing-room only crowd at the Innisbrook resort.

Corporate abuse isn't new. But this time, says Levitt, something's gone especially wrong. When it comes to business leadership, nobody's stepping up because nobody's home.

It didn't use to be like that. Levitt points to such leaders as the socially aware Boston retailer Edward Filene, DuPont CEO Irving Shapiro, Citicorp chief Walter Wriston and Goldman Sachs' John Whitehead for their "publicly spirited values."

As SEC chairman, Levitt championed individual investors during the great 1990s' bull market and the emergence of mass investing. But when he pushed for greater transparency of corporate earnings and equal disclosure for investors, he was overwhelmed by lobbyists of Wall Street and corporate America.

When Levitt pushed to ban auditors from consulting with the same client, Congress -- awash in campaign contributions from the powerful accounting profession -- blocked the SEC initiative. Business and tech lobbyists also convinced Congress (especially Sen. Joe Lieberman, the Connecticut Democrat who would become Al Gore's running mate in 2000) to ignore an SEC plan requiring the expensing of stock options.

Talk about deja vu. Many reforms championed by SEC chairman Levitt, and so soundly crushed by Congress, are the very same improvements recently rushed into law in the wake of Enron and WorldCom.

Last fall, Levitt published a timely book with the populist title, Take on the Street: What Wall Street and Corporate America Don't Want You to Know. Much of it is rather depressing, because Levitt describes an investing world that is inherently unfair to the smaller investor and skewed to favor the rich.

To his Innisbrook audience, Levitt urged the CFOs to make the restoring of investor trust a top priority. How? By accounting for transactions in a straightforward manner. By adopting GAAP (Generally Accepted Accounting Principles) not as some lofty standard to meet but as a foundation. By making available more, not less, information about a company so shareholders can better understand the business. By insuring boards are composed of qualified and independent directors.

And by remembering who the chief financial officer really works for. "Put yourself in the shoes of your shareholders," Levitt told the CFOs.

What's wrong can be fixed, Levitt insists. Just don't look for an overnight cure to a two-decade deterioration in business ethics.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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