Corporate boardrooms still home to sleazy dealings
By PHILIP GAILEY
Published June 15, 2003
Enron and WorldCom were the first corporate scandals to erupt, shaking Wall Street like an earthquake and robbing employees and investors of jobs and retirement security. They opened our eyes to the ethical rot inside corporate boardrooms and executive suites and to the collusion among corporations and accounting companies and Wall Street investment houses. The stories about greed, corruption and criminal conduct keep coming, reminding us that Corporate America is still oozing slime and sleaze. The scandals have become so routine most of them don't even make the front page anymore (Martha Stewart's indictment was an exception because of her celebrity). You have to look for them in the business section of newspapers.
Consider some of last week's newspaper headlines:
Firm Silent as Patients Died
Former Employees of Dynegy Face Charges of Fraud
Former Mobil Oil Executive Pleads Guilty to Tax Evasion
Former Chief of ImClone Is Given a 7-year Term
Accounting at Mortgage Concern Is Under a Criminal Investigation
Now let's look at two of the stories behind the headlines. Corporate wrongdoing can have real consequences, including death. Twelve patients died and dozens needed emergency surgery because a major maker of medical devices lied to the government and hid thousands of incidents in which its product, a fabric graft used to treat weakened blood vessels without surgery, malfunctioned.
Last week, Endo Vascular Technologies Inc., a subsidiary of Guidant Corp., pleaded guilty to 10 felonies, admitting that it had lied to the government and covered up problems with its medical device. The company agreed to pay $92.4-million to settle federal civil and criminal charges. We're told it is the largest financial penalty ever imposed on a maker of medical devices for failing to report problems, as federal law requires. But it doesn't strike me as a particularly stiff penalty for a company that reported $612-million in profit last year. We can assume that juries deciding the private lawsuits already filed won't be so lenient.
"Because of the company's conduct, thousands of patients underwent surgeries without knowing the risks they faced, and their doctors - through no fault of their own - were unprepared to deal with those risks," U.S. Attorney Kevin V. Ryan said in a statement. "These actions were criminal."
The coverup just didn't happen. Someone had to make the decision to withhold information from the Food and Drug Administration. Someone had to decide to commit a crime. No individual has been charged, but the government says its investigation is continuing. (Psst! Follow the bonus money.)
Meanwhile, something smells at Freddie Mac. No, Freddie Mac is not a barbecue establishment in Alabama. It's the second largest financier of home mortgages and, like its bigger cousin Fannie Mae, is in serious need of closer government scrutiny. Freddie Mac and Fannie Mae are essentially government agencies owned by shareholders and subsidized to the tune of $10-billion by taxpayers. Rich and arrogant, they pay no local and state taxes and lavish their top executives with stock options and bonuses. If something goes wrong behind their closed doors, it could have huge consequences for taxpayers and the economy.
Something apparently has gone wrong at Freddie Mac. It is under investigation by Congress, the Securities and Exchange Commission and the U.S. Attorney's Office in Northern Virginia, which is conducting a criminal probe. The board of Freddie Mac recently fired David W. Glenn, the president, and forced the resignations of Leland C. Brendsel, its chairman and chief executive, and Vaughn A. Clark, its chief financial officer. The shakeup came two days after Glenn told a special counsel investigating accounting irregularities at Freddie Mac that he had altered and removed pages from the handwritten records he kept of company meetings.
Freddie Mac handed Chairman Brendsel a golden parachute on his way out the door - stock options and shares worth $21-million and a severance package that includes $3.2-million in salary and bonus payments over the next two years. And, oh yes, health care and life insurance benefits for the next five years. It's tough to be unemployed.
The severance package got the attention of some members of Congress who are demanding answers and threatening tougher oversight of Freddie and Fannie. Republican Richard H. Baker of Louisiana, chairman of the House subcommittee that oversees the regulators who are supposed to oversee Freddie and Fannie, wants to know the reason Freddie Mac's top executives were forced out before they get a penny of severance. The severance packages are on hold for now.
What is there to review? Brendsel's severance package would be obscene even if Freddie Mac wasn't under criminal investigation. Or even if Brendsel had not been fired. Has the public's sense of outrage been exhausted? Apparently so.
