|Man Without Qualities|
Friday, June 28, 2002
Hunter S. Thompson was wrong when he criticized the ether binge. In fact, there is nothing in the world more helpless and irresponsible and depraved than an academic economist in the depths of a legal reform binge. And I knew we'd get into that rotten stuff pretty soon.
The most recent example of this grim phenomenon is Burton G. Malkiel, a professor of economics at Princeton, who today snorts on the editorial page of the Wall Street Journal that:
There is no way one can legislate accounting standards and there is no way to fix generally accepted accounting principles so that full transparency is assured. But perhaps the most useful thing we can do is to accept the suggestion of Treasury Secretary Paul O'Neill that CEOs should personally vouch for the veracity and fairness of their company's financial statements. Perhaps the independent chair of the firm's audit committee should sign the statement as well. If the firm's statements later prove to be misleading, the CEO should be held criminally liable.
One wonders why Professor Malkiel does not have full faith in his insights. Strict criminal liability? Heck, why don't we just kill the CEO if the financial statements are later judged to be misleading? Didn't that kind of thing work when Mussolini ordered the engineer on any late train shot? Didn't that make the trains run on time? Of course, a naïf might be concerned that such "reforms" might lead to a certain inefficient conservatism in the financial statements of public companies. [And, as Ben Sheriff points out, overly conservative financials are misleading in their own way. So the CEO is doomed no matter what. Like the male black widow spider, the CEO is now to mate with the company only to be devoured.] But this is foolishness. In fact, under either Professor Malkiel's theory or my enhanced version, the CEO of a public company would never have an IQ in excess of 50, for surely nobody with an intelligence quotient higher than that would even consider remaining CEO of a public company, although to be fair to Professor Malkiel one must admit a certain tension between my enhanced proposal and some recent Supreme Court decisions.
One can imagine the scene in the office of, say, Sandy Weill, head of Citigroup, as his assistant enters with the freshly prepared annual financial statements for the sprawling financial services company. The plucky strawberry blonde lays the signature pages before the financial world's éminence grise with a perky comment:
Plucky Strawberry Blonde: "Here are the financials for you to sign. And you asked me to remind you about our treatment of the Argentina loan exposure at the commercial bank level, and that you will be held personally criminally liable if some jerk (as you called him) at the SEC thinks the financials are misleading after the fact. Here's your Mont Blanc."
Éminence Grise: "I think I need a new corporate title and a drink! ... What's this stuck to the back of the financials?"
P.S.B.: "O, you don't need to read that now. That's just my draft whistleblower memo to the Senate Finance Committee in case we need to put you in jail. The accountants added a macro to the spread sheet program that spits one of those out automatically every time they run the financials. They figured the things people like Watkins and Rowley were writing were so formulaic that it would save time to just add the whistleblower memo to the spread sheet program. You know ... the usual stuff. Climate of fear and/or greed. Oppressive male power structure. That kind of thing. It really only took a few lines of programming - and now it's all updated automatically every quarter."
E.G.: "I feel so reassured."
P.S.B.: "Yes. And here's a reprint of the latest paper from that nice Professor Malkiel at Princeton. It's titled "The Public CEO: Who Needs One? Who Wants One? Catchy, huh?"
E.G.: "Like an ad jingle."
P.S.B. "The paper intro says its based on the author's careful study of the Orpheus Chamber Orchestra, a classical orchestra that performs without a conductor, with the discovered principles carefully applied to the modern corporation. Isn't that interesting? I didn't know they had those."
E.G.: "The man's a genius."
P.S.B.: "And the CFO called this morning to say our stock price has now reached drill-bit size. What did he mean by that? But he said not to worry, that we have lots of company now that Congress passed that reform act. Something about nobody being able to hire management any more."
E.G.: "I guess there's always a bright side. Good to have a CFO who sees the bright side."
P.S.B.: "Also, the company's last in-house lawyer cleared out his office yesterday. We're now entirely dependent on expensive, outside counsel relatively unfamiliar with our needs. Legal expenses are expected to increase about 1,000% this year with only a modest drop in effectiveness."
E.G.: "At last. After that Andersen verdict those in-house lawyers were just land minds waiting to go off. How many times did I hear one of them ask not to have their name added to my memo. Suicide, Plucky. Suicide."
P.S.B.: "O, yes, one last thing. Our lobbyist called from Washington to say that the President will sign that bill making academic economists strictly criminally liable if their advice and studies are used to support public policy changes but are then found to have been misleading."
E.G.: "Wonderful. It's a small thing - but it makes me feel so good."
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