American business is held in contempt today at a level not seen since the 1930s. Accounting fraud, unethical executive compensation schemes, the meltdown of the technology industry and the NAFTA-izing of American manufacturing jobs have given critics a fertile field to nurture their crop.
Much of this might have gone unnoticed but for the crashing of the stock market. And even that might have caused little stir if millions of Americans had not discovered the stock market during the 90s and built their hopes for the future on its unending growth.
Fortunes, large and small, have been decimated by the decline in stock prices over the last year or two. With war clouds on the horizon recovery is likely to be painfully slow. In fact, it may get worse before it gets better.
What’s business to do to regain the confidence of the American public? Perhaps now is a good time to revisit some basic principles of conducting business that have served us well in good times and bad.
1. Set REASONABLE performance expectations. The pressure to show continuous growth became unbearable during the economic miracle of the 90s. Rather than face the reality that every bull market must end someday, weak -willed executive with a personal stake in financial growth chose the route of dishonesty and deception to try to keep the ball rolling a while longer.
2. Manage the business for the benefit of ALL STAKEHOLDERS — owners, employees, suppliers, communities and customers. Business management is always a balancing act between maximizing profits and fair treatment of all players. When a larger slice of the economic pie is served to any one group, the organization suffers and long-term survival becomes iffy.
3. Hold management ACCOUNTABLE. Directors are frequently guilty of rubber-stamping management decisions in the interest of keeping peace and not stirring the pot of dissension. That pot needs stirring occasionally. We all know the admonition against absolute power. Everybody should be meaningfully accountable to someone.
The results of the current crisis are undoubtedly going to include new laws, more regulation and increased scrutiny of business operations. By and large this is unfortunate because the crisis didn’t occur as a result of too few laws and regulations. It arose because some people chose to break the rules already in place. When a person refuses to abide by the rules, additional rules are not going to convert that person into a model citizen.
Nonetheless, bureaucrats never miss a chance to enlarge their domain and American business has given them an irresistible opportunity. It will take years for sensible people to undo the avalanche of regulations that will soon be rained down upon us all.
Not all of the changes will be bad. Auditors are likely to be curtailed from providing consulting services to audit clients and that could be good. The public needs to have legitimate confidence that auditors have no axe to grind other than being objective. This will be an unfair economic blow to many CPAs who are able to balance audit integrity with lucrative consulting work, however it appears that all must suffer for the sins of the few.
Directors of public companies are likely to take their responsibilities more seriously now than in the past. This will be particularly true of audit committee members and those having oversight over executive compensation. Nonprofit directors were similarly taken to task several years ago for not minding the store and now view their responsibilities as the serious business that they are.
Some changes in accounting principles are inevitable. The proper accounting for stock options has been under discussion for decades but will likely be resolved in the near future. When an employee is granted a stock option and wealth is created, that wealth must have come from somewhere. Thus someone gave up something to the benefit of someone else. The someone who gave up the wealth are the other stockholders. Somehow that transfer of value needs to be reflected in the financial statements and that will soon happen.
Times are tough. However, times have been tough before. The American spirit has prevailed in the past and we will weather this storm too. There is nothing to do but keep on doing what we do the best we can and trust that a better day is coming.
Thought for the Moment — No one is useless in this world who lightens the burden of it for anyone else.
— writer Charles Dickens (1812-1870)
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.