GIVE STATES INCENTIVE TO GO AFTER ROGUE CORPORATE LEADERS -- The real cause of this summer's business scandals is that states have abdicated efforts to regulate the behavior of directors of public companies. So says J. Robert Brown, associate dean in the University of Denver's College of Law. A former SEC lawyer, Brown says states fear that firms will move and take their jobs with them. Thus, state courts almost always defer to the judgment of "independent" directors even when the directors allow the CEO to make decisions that help the leader while hurting the firm. One solution, Brown says, is to require firms to incorporate where they have their HQ or principal place of business. This would prevent firms from moving to states promising less stringent oversight.
RESTORING RESPECTABILITY TO ACCOUNTING -- The accounting profession is facing a major credibility crisis in the wake of the role accountants had in the series of recent scandals that have rocked the corporate world. Dr. Dorothy McMullen, CPA -- a former senior auditor for Arthur Andersen who is now an associate professor of accounting at Rider University in Lawrenceville, N.J. -- proposes the following 10 points to restore respectability to accounting:* Prohibit auditing firms from providing both external and internal audit functions. * Prohibit audit firms from designing and installing computer systems that deal with financial reporting. * Clients should have to wait two years before hiring audit personnel. * Make auditor rotation mandatory, perhaps after a 10-year period. * The audit opinion as it exists also needs to be changed. * A new independent body should be created that would oversee audit quality, peer review, disciplinary actions as well as standard setting for the auditing profession.* Make self-regulation more effective. * Put the Financial Accounting Standards Board (FASB) under the umbrella of the aforementioned regulatory group. * Reform is needed with regard to the audit committee and its role in the reliability of financial reporting.* Mandatory audit committee chairperson rotation should be required after five FASB years.
STAKEHOLDER CONFLICTS GIVE CEOS "DEFINING MOMENTS" -- Ethical leadership is about balancing multiple stakeholder interests, according to Stuart Youngblood, professor of management and ethicist at Texas Christian University in Fort Worth. Customers, shareholders and employees can have conflicting objectives. When this happens, leaders face "defining moments." How they choose to meet these moments is watched by everyone and has short and long term consequences for all stakeholders. "Ethics starts at the top," he says. "CEOs are not very good role models these days. Boards of directors need to rethink how they choose and reward CEOs and senior executives. The incentives are not aligned."
DOCUMENTING THE REAL MEN OF STEEL -- The beleaguered American steel industry was back in the news in March when President Bush invoked a U.S. trade law that raised import duties on certain steel products up to 30-percent. The U.S. Commerce Department also exempted close to 136,000 metric tons of foreign steel from the hefty Bush tariffs just last month in a move aimed at ensuring adequate domestic steel supplies and easing trade tensions. The President's initial move was designed to jump-start the ailing U.S. steel industry, which was losing even more ground to its cheaper foreign rivals. John Hinshaw, assistant professor of history at Lebanon Valley College in Annville, Pa., documents just how the steel industry got to its current plight with his new book Steel and Steelworkers -- Race and Class Struggles in Twentieth-Century Pittsburgh. The book provides an account of the forces that shaped Pittsburgh, big business, and labor from the city's rapid industrialization in the mid-19th century, through its deindustrialization in the end of the 20th century. Hinshaw raises questions over whether organization, power and politics proved as important to the industry as economics. He analyzes the contemporary steel industry in the final chapter, titled "The Lean Years: 1978-2000."
COMBATING THE NURSING SHORTAGE -- The national nursing shortage has been well-documented as a problem plaguing the medical industry. Part of the problem is finding adults interested in a medical career who have the time to become nurses in addition to their current jobs. The Penn State School of Nursing and Geisinger Health System are overcoming that as they have launched a cooperative program to help 40 hospital employees earn nursing degrees without leaving their present jobs. In January, the students enrolled in general education courses through Penn State's Schuylkill campus as a start on the path toward an associate's or bachelor's degree in nursing. The Penn State School of Nursing is requesting approval from the State Board of Nursing to offer the group of students nursing courses starting in the fall semester of 2003. Classes are held during the evenings at Geisinger Medical Center in Danville, Pa., and other nearby locations -- such as Danville High School, where lab space is used for a biology course. Enrollees include LPNs, clerks, secretaries and other employees of Geisinger and local community hospitals. The students are receiving tuition reimbursement, loans and other financial aid from their respective hospitals. Students in the program must meet the usual Penn State admission requirements, and faculty for the program must meet the standard credentials for Penn State University.
THE REAL ECONOMIC TRUTH ABOUT BUDGET DEFICITS -- The government's budget has rapidly reversed from a record $248 billion surplus in 2000 to a projected deficit of $100 billion this year. Deficits could again be public enemy number-one, at which point lawmakers will claim that that the nation cannot "afford" additional spending or tax cuts -- aside from spending on the war effort. But that's simply not the case, according to Scott Fullwiler, an assistant professor of economics and the James Leach Chair in Banking and Monetary Economics at Wartburg College in Waverly, Iowa. "It is ALWAYS the case that what a nation can afford is dependent not upon money, but upon the productive capacity of its citizens," says Fullwiler. "Restricting government spending or tax policy to avoid deficits or to run surpluses in order to pay down the national debt fails to recognize this." Fullwiler supports his claim with the following facts:
* Deficits have coincided with the U.S. becoming the world's economic superpower. During the period 1950-1997, a 48-year span, there were only five deficit-free years. * In the nation's 226 years of existence, there has been exactly one debt-free year -- 1836. If the national debt actually did need to be paid back, Fullwiler theorizes that the U.S. wouldn't have been able to go 166 years without doing so -- or 40 years without even making a single payment.* According to economist Frederick Thayer, the six significant periods of debt reduction in our history -- 1817-1821; 1823-1836; 1852-1857; 1867-1873; 1880-1893; 1920-1930 -- have all been followed by depressions, beginning in 1819, 1837, 1857, 1873, 1893, and 1929. "While debt reduction may or may not have caused the depressions, one can state unequivocally that there has never been a period of substantial debt reduction that was not followed by depression," says Fullwiler.* The government is a sector of the economy, just as there is a household sector and a business sector. When the government is in surplus, other sectors of the economy must necessarily be in deficit. Economists Wynne Godley and Randy Wray have shown that during the 1990s "boom," the government's "good" news of very large surpluses -- starting in 1998 -- was predictably accompanied by the highest ever deficits among households and firms combined. "Not coincidentally, household saving from income has been at or below zero-percent since 1998," says Fullwiler.* Deficits have far less effect on interest rates than the Federal Reserve does.
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