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Christopher Walker: Give us cardigans, not cowboy boots

Sunday 07 July 2002 00:00 BST
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"This man has the answer." I folded away the latest revelation of corporate wrong-doing and waited anxiously. The garret in Stockholm was more like a student hall of residence than an office. Finally the door opened, and in shuffled Christian, a small curly-haired man in spectacles and a green cardigan. The modest analyst from the ethical advisers, Caring Company, was carrying a mug of coffee. I wondered if he might just be the saviour of capitalism.

Bernie Ebbers is not the sort of man to wear a cardigan. The ex-chief executive of WorldCom prefers cowboy boots and lists castrating bulls as one of his main recreations. Like so many other corporate idols, he'll need all his toughness in the wave of the critical questioning that will now descend on him. After all, a $3.8bn (£2.5bn) accounting "slip-up" makes Enron look like a well-run company.

The succession of US corporate scandals has been extraordinary. WorldCom follows the Enron saga; Adelphia Communications (some $3bn in loans to the founding family); an accusation against Rite Aid Corp that it overstated profits by $2.3bn; and Tyco, where the ex-CEO (on $40m a year) was caught evading tax. Arthur Andersen shreds, Merrill Lynch tips house stocks its own analysts describe as "crap". Something's rotten in the state of corporate America.

The exuberance of the late Nineties may have been irrational for investors, but it was perfectly understandable for those on the inside. The gravy train stretched a long way, from corporate lawyers, through investment bankers and analysts, right into the boardroom. Here the rewards were phenomenal, dressed up in various option schemes. In the months before the Enron scandal broke, 114 top executives reaped $435m through restricted stock options. At Oracle, Larry Ellison netted $706m.

The man who sells me my newspaper in the morning became a dot-com punter, turning his £20,000 life savings into more than £100,000. He is now left with hardly anything. It was millions of ordinary shareholders like him, along with the now-redundant employees of "house of cards" companies, who funded this Croesian wealth.

These losers are also voters – so the politicians are taking action. President Bush has called for another crusade, this time to "restore faith in the integrity of American business". A new commission expects to issue recommendations on executive pay, including stock options, company loans and severance pay. Changes to American audit practice are being considered.

But political action is not enough. We were reminded this week that the crisis of capitalism is not confined to the US. Another once great entrepreneur, this time a Frenchman, Jean-Marie Messier, was forced out of Vivendi Universal after a 75 per cent drop in the share price. Vivendi, one of Europe's biggest conglomerates, also made loans so its chief executive could buy shares and also, apparently, attempted to reclassify $1.8bn of accounting as profits, a proposal the French Stock Exchange rejected when it was put forward by the company's auditors (guess who?).

While government action is therefore welcome, it must be co-ordinated around the globe. We need more than action against individuals. We need to tackle the culture of greed and deception that the last boom has fostered.

This is where the man in the green cardigan comes in. He, and others like him, are developing complex research tools that allow the shareholder to make sensible judgements on the ethical behaviour of companies. By engaging with companies, armed with this information, shareholders can force through change.

In the crisis that now faces capitalism, it is time for us all to get ethical.

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