Club Fed

September 16, 2002

GIVEN THE procession of once-high-flying executives facing federal indictment, there's a new book that could become required boardroom reading: a guide to surviving the slammer, of particular use if you mistakenly believe white-collar crooks end up at Club Feds.

Pardon us for admitting the human truth that the fall of CEOs as philosopher-kings deeply satisfies many -- not just those who lost jobs or assets due to corporate corruption. How far we've come from days when half the magazines served up paeans to retired General Electric honcho John F. Welch Jr. (Note: Mr. Welch's current legal problems come from a messy divorce, one in which his estranged wife recently revealed GE has been footing his huge living expenses.)

This year's annual Labor Day poll found half the nation now believes big business, not big labor, is America's biggest threat -- the highest level in the 48 years that pollsters have been asking. If so, it's in part testimony to the power of the perp walk.

First, the 77-year-old head of the Adelphia cable TV company was led off in handcuffs. Then a top Enron financial executive was flipped like a petty thief, pleading guilty to felonies and agreeing to rat out his corporate pals (and, significantly, cough up $12 million in illegal gains).

Two WorldCom execs also have been indicted, just the start of a series of anticipated prosecutions from the largest-ever corporate collapse. Former Sunbeam chief Albert J. Dunlap, lovingly dubbed "Chainsaw Al" for his skill at profiting by axing jobs, agreed to pay $500,000 to the Securities and Exchange Commission for allegedly falsifying profits. (He's also barred from leading public companies.)

On Thursday, three former Tyco International executives were essentially charged with stealing tens of millions of dollars from their company.

Let's also not forget this summer's breakthrough arbitration ruling against Merrill Lynch: $7.7 million for mishandling a Pittsburgh couple's investments even though they controlled their account. That follows Merrill's $100 million settlement with New York state for letting its investment banking business influence its supposedly independent stock research.

Last but not least, New York's attorney general also is looking at Jack Grubman, the highest of the high-tech stock analysts, for his questionable dealings, and Congress is still probing allegations of insider trading by Martha Stewart, whom everyone loves to hate anyway.

The good news is, this parade likely will continue. But let's momentarily stop cheering for a reminder that these cases don't buttress President Bush's thin notion that the country's economic woes mainly stem from a few "bad apples." Fixing this mess involves at least four big factors: improved corporate earnings, tighter government oversight, market rewards for better corporate governance, and prosecutions.

The earnings picture is mixed at best. Tighter regulation is under way from recent congressional and SEC actions, but much more needs to be done. Officials at the big pension and mutual funds -- which control half of all stocks -- are talking about throwing around their market weight, but have yet to firmly do so. So a lot of tough work remains -- in boardrooms, at investment houses, at the SEC, in Congress.

But in the meantime, it's hard not to believe continued aggressive pursuit of corrupt executives can't help but have a much-needed chilling effect on corporate America.

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