Being Street Smart
Most CEOs Are Not Crooks
By Sy Harding, editor
Street Smart Report Online
It's
important for investors to remember that there are 17,000 publicly
traded companies, and over the decades almost all have operated
honestly, and treated their investors fairly. Otherwise, in spite
of the occasional scandals created by a relative handful of crooks,
the stock market would not have its long-term record of being
the best home for investment assets.
In a recent column
I worried that the government's hyped-up response to the Enron,
Tyco, WorldCom scandals might result in a cure that's worse than
the disease. My reasoning is that, now that the damage has been
done, those who had the responsibility of policing and preventing
such situations, and failed to do so, are in a race to see who
will be seen as the toughest as far as getting the barn door
closed. With a serious bear market underway, the economy in a
very fragile recovery, and investors here and abroad already
full of fear and distrust, probably the last thing needed is
headlines and TV programs dominated by Presidential mandates,
Congressional hearings, and belated investigations by regulatory
agencies. While their goal of bringing back trust in corporate
governance is certainly important, they risk running headlong
into `the law of unintended consequences'.
Don 't get me wrong.
If investors are to regain confidence in corporate managements
and the stock market the crooks need to be found, and as I have
said before, need to do at least as much hard time for their
theft of millions, as does the poor guy that robs the Mini-Mart
for money to buy a six-pack, or a pair of shoes for his kid.
But it's too bad it's being done in such a circus atmosphere.
I do have concern for the unintended consequences.
The biggest shame is
that there are already enough laws on the books, had they only
been enforced. But the SEC and other regulators were not doing
their jobs, perhaps due to the cozy relationship that has always
existed between the regulatory agencies and Wall Street. That
failure should be the main focus of the Congressional hearings
and investigations not the passage of still more laws. But Congress
created the watchdog agencies in the first place, and oversees
their operations; so little blame will be placed there.
The odds for unintended
consequences are even higher now that both sides in Washington
have jumped on `corporate governance' as the nation's biggest
problem, and how to fix it as the main battleground leading up
to the Congressional elections in November. That will certainly
keep the scandals in the headlines, and investors fearful of
when the next shoe will drop.
It doesn't help that
Wall Street brokerage firms are jumping on the "It's the
corporations' fault They didn't give us accurate information"
bandwagon, but understandable since it redirects the spotlight
that had initially been aimed at their own scandalous, even fraudulent,
behavior in misleading investors into the stock market bubble
of the 1990s.
The best fix for the corporate distrust problem would be for honest corporations to step forward by the hundreds, or thousands, to make sure investors realize that, as motorcyclists and the Catholic Church say, it is the less than 1% bad guys that fool people into painting an entire group with the same brush.
David Hughes, CEO of the big building-supply store chain, Hughes Supply, set the kind of example needed when he stepped out this week to say, "In the businesses I have been involved with over the last 40 years, as customers and suppliers, 99% of them are extremely ethical."
That's the message honest corporations must get out to investors if the scandals of fewer than a dozen firms are not going to bring down the entire economy. Because right now the attitude of investors is that corporate America has let the country down, and you can't trust any of them, and the pessimism is spreading rapidly from investors to consumers, as indicated by the University of Michigan 's report on Friday of a big plunge in consumer confidence so far in July. That growing pessimism will not be alleviated by the atmosphere being created by the Administration, Congress, and awakened regulators in their new-found determination to appear tough and on top of the situation.
Perhaps they could helpfully point out that as a percentage of the total, there have been many more scandals involving Congressmen over the years than the miniscule percentage of the 17,000 publicly traded corporations, and by a much higher percentage of Presidents (and Vice-Presidents) of the U.S. than Presidents and Vice-Presidents of corporations. Yet we certainly haven't given up on the U.S.A.
So let's not let the current investigations, and the `law of unintended consequences', cause us to give up on corporate America. Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy, Suite 11, Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $250 (now in its 15th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com, 1 year, $225. Mr. Harding has consistently ranked in the Top Ten Timers by Timer Digest for years. In March 1999, he authored the book, Riding the Bear How to Prosper in the Coming Bear Market, $12.95 (the Dow topped out just 9 months later). In Riding The Bear, Mr. Harding explains not only bear markets, but how bull and bear markets get started and end; how public investors can break their pattern of only becoming interested in bull markets in their final stage, get killed, and then are too scared when the next bull market begins. He explains in plain English how the market reacts, how cycles work, and how to take advantage of them to hold onto your bull market profits and actually increase them during a bear market. Harding also explains the Seasonal Timing System in detail. This highly recommended book is FREE as a bonus with a subscription to Sy Harding's Street Smart Report.
