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Meltdown on Wall Street

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  1. 1. In a season of shame, on whom can we rely? By ANDREW RATNER lONITAFF I F TRUST AND ETHICS were pub- lic stocks, they'd be at risk of being delisted. Every few days brings news of a fraud more immense than the ones that preceded It. WorldCom Inc., the nation's second-largest long-distance company, revealed last week that It overstated the money it made by $3.8 billion dating back through last year. The company, already teetering, could wind up In a bankruptcy even larger than the one that ended Enron Corp., the previous poster child for corporate accounting Illusion. WorldCom's auditor, Arthur Andersen LLP, would be in trouble If the venerable ac- counting firm hadn't already been destroyed by a criminal conviction for shredding docu- ments in the Enron affair. Meanwhile, America's doyenne of design has gone from Martha Inc. to Martha fink in a few short weeks In another case of per- ceived financial mischief. Martha Stewart has become the unlikely face of market mis- trust as allegations build that she dumped stock she owned In ImClone Systems, a drug company, based on an Insider tip. Tyco International Ltd., Global Crossing, Adelphia Communications Corp. and Rite Aid Corp. are some of the other scandalized companies that have erased the stock mar- ket gains that followed Sept. 11. A Wall Street community that had begun to recover from an external attack now finds itself suffering self-inflicted wounds. Once- disgraced tobacco companies are trading higher as a group than securities brokers on the Dow Jones Index. Business Is not alone In a season of shame. The Roman Catholic Church has been dis- graced by revelations that hundreds of cases of child sexual abuse by priests had been covered up for years. In academia, leading historians have been accused of plagiarism. The Olympic Oames were embarrassed when duplicate gold medals had to be awarded in pairs skating after officials con- spired to trade votes. Major League Baseball is tarnished by allegations that It's full of doped-up Popeyes, inflated on illegal ster- oids. Even kid sports are [See Ethics, 7c]
  2. 2. FKACTUKED A nation's season of shame [Ethics, from Page Ic] two industries in the throes of term performance to long-term gain truth In stock analysis. deregulation. reward. Both actions were hastened by soiled by cheating: The top In its most recent survey of • Taming of auditors and ana- the current climate, analysts pitcher in the last Little League corporations, in 2000, the non- lysts through consulting ar- said. World Series turned out to be profit Ethics Resource Center in rangements between their firms Some experts, however, ex- not little enough, with a fake Washington, D.C., found that and the companies they're sup- pect that political overkill will birth certificate. workers felt added pressure to posed to investigate. add to accounting confusion. "We're in a period of disen- act unethically in "transi- • Glamorizing of big-money "The SEC built up an illusion chantment. This is mom and ap- tioning" companies that had re- CEOs, like pro athletes or enter- of trust that you can trust the pie pie we're talking about — cently been through a merger, tainers. gatekeeper. Nobody can control Martha Stewart, the Catholic an acquisition or restructuring. • Litigious tendencies to em- information. It's a losing task. Church. There seems no area of About 23 percent of employ- phasize what is legal, not what But my prediction is there will our society that's sacred " said ees in such companies re- is ethical. be more regulation when there John Challenger, chief executive sponded that they felt pressure • Mega-mergers that produce should be less, but more fo- officer of Chal- to compromise conglomerates with complex cused," said Saul Cohen, a New lenger. Gray & P rinc 'P les when . balance sheets. York attorney who was the SEC- Christmas,, an tney didn t have "This is all the logical by- appointed counsel for Drexel o u t p l a c e m e n t OJ disenchantment, ethics training. product of a fetish our economy Burnham Lambert Inc., the in- firm in Chicago, rrn, • • j That figure had developed about the impor- vestment bank brought down by -We've got CEOs ThlS IS mom and dropped to 13 tance of shareholder returns for the 1980s junk-bond scandal falling like Nix- We're percent in simi- companies," said Donald that landed trader Michael ons everywhere." "' ' " lar companies in Hambreck, a Perm State man- Milken in prison. "You have an talking about — flux that did pro- agement professor and an au- "This is a blip," Cohen said. ethical crisis In , , ., r,, , vide such train- thor on the reform of corporate "This society Is too educated. the Vatican and Mart/ia Stewart, |ng. Interestingly, boards. "Everyone's oriented to- Most people live in urban areas, on Wall Street, tt,0 Csithnlin ethical codes ward straight economic per- not in rural ones, and they're tn- two very power- lllK ^WflUUt mdn , t seem to formance, and that takes over terconnected with telecommuni- ful but very dif- Church. " matter in stable the internal culture of a com- cations. This is not the society ferent institu- companies, pany and the kind of people of 1900. There's more than tions," said W. - where only 10 they promote. It's a high testos- amusement out there, but less Michael Hoff- percent of em- terone culture that affects the than anger. It's 'What would you outlook of dlrec- expect when you t o r s as w e l l . "77ij'« jc nil tht> l give CEOs a Center for Busi- with or without There's less sen- "" "' "" " , chance to make a ness Ethics at Bentley College in guidelines. sitivity to multi- logical byproduct quick buck?'" Massachusetts. "Right now, "I always said about Enron pie stakeholders, ,. /> ,• t "Washington none of us know who we can that the children were running less concern of OJ a jettSfl OUT nas shown it will trust. We as human beings are amok. You had a lot of very ethics." use a sle dgeham- not so different from our organi- young people with no supervi- Challenger be- mer every time it zatlons and institutions. Every sion, no organizational or Indus- lieves that the developed dOOUt can use a f l y - so often, we kind of crash and try memory," said Abigail Hub- n e x t c r o p o f .L . ,, swatter. My fear burn. We need to go through an bard, a management professor CEOs will in- the importance Of Is that Congress individual catharsis." at the University of Houston, creasingly come wi " go o v e r - Emotions range from disgust who has studied the psychology from back- board." said Stu- to anger, especially in communl- of corporate whistle-blowing for grounds In fl- returns for art Oilman, exec- ties beset by layoffs. Cover sto- years, in Enron's back yard. nance or law, as , utive director of ries in the mass media reflect "Partisan p o l i t i c s aside, opposed to many Companies the Ethics Re- the mood: some companies try there's something to be said in the current source Center. to profit from it. A TV commer- about what happened In the last class schooled in „ "Our economy is cial for one brokerage portrays a eight years. It came out in the sales and mar- not in that bad a fictional competitor ruthlessly last election; said Hubbard. re- keting - skills shape. What's urging its brokers to put "lip- ferring to President Clinton's that made them missing is trust" stick on a pig" and push lousy defense of his affair with a White more sought after and suited for Adam Smith, the father of stocks. The hero of the comics House intern. "To say, 'I didn't a high-octane economy. modern economics who thco- pages isn't a superman — he's have sex with this women,' be- Many in the financial sector rized about an "invisible hand," "Dilbert." poking fun at corpo- cause I'm going to define it an- also expect new laws in re- assumed that sympathy for the rate duplicity. other way, that was very impres- sponse, just as the Securities plight of others would check the Post-lndustrial America has sionable" and Exchange Commission was potential excesses of capitalism, had spasms of corporate greed. Many blame the 1990s leap in formed to police the stock mar- said Gary R. Weaver, a business often affecting the emerging in- stocks as the fountainhead of kets after the 1929 crash. A bill professor at the University of dustries of a particular era — oil the current crisis in confidence sponsored by Sen. Paul S. Sar- Delaware. trusts in the 1890s, defense in- Experts and investors point U) banes of Maryland would halt Mark Twain, however, might dustry scandals and the savings the: firms from mingling consulting have been a better predictor of and loan crisis in the 1980s. The • Preponderance of stock op- and accounting services, and the current predicament. latest epidemic has hurt tele- tions to reward executives, the New York attorney general Virtue, he said, has never been communications and energy, which increasingly tied short- pursued Merrill Lynch & Co. to as respectable as money