Are We Finally Breaking the Vicious Cycle of Corporate Deceit?

Are We Finally Breaking the Vicious Cycle of Corporate Deceit? - 8/5/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Are We Finally Breaking the Vicious Cycle of Corporate Deceit?
Steven Pearlstein

Washingtonpost.com. August 5, 2009
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EXCERPT: In its settlement this week with Bank of America, the Securities and Exchange Commission offered a peek into the cute tricks public companies use to withhold vital information from their owners. Last November, Bank of America asked its shareholders to spend $50 billion to purchase the struggling investment house Merrill Lynch. The proxy seeking their approval stated that Merrill had agreed not to award discretionary compensation -- bonuses -- to its employees for 2008 without first getting written approval from Bank of America. What it failed to mention was that weeks before, Bank of America officials had already granted that permission, capping bonus payments at $5.8 billion. This is pretty much standard operating procedure in corporate America -- Bank of America was just unlucky enough to have gotten caught. To boost stock prices and reputations, corporate executives go to great lengths to snooker their shareholders and put the best light on what they are doing. They hire fancy Wall Street lawyers, as Bank of America did with Wachtell Lipton, to find clever ways to accentuate the positive while hiding in footnotes any information that might stir controversy or put things in a bad light. In their version of corporate reality, lawsuits are always without merit, executives leave only for "personal reasons" and regulatory actions are settled not because anyone did anything wrong but simply to avoid the cost of litigation. Over time, this cynical game has become so ingrained that investors, analysts and business reporters now simply take it for granted that they are being spun or misled. Whenever bad news comes out, investors assume they are being told only half the story and overreact, leading companies to be even less candid next time. The result is a vicious cycle of deceit and distrust.

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