Archive for Saturday, December 1, 2001

A contrast in corporate ethics

December 1, 2001


Texans regularly brag about Texas. Sometimes they so exaggerate their home state's alleged virtues that independent observers argue that Texans have little regard for the truth. That is unfair. Texans have such a high regard for the truth that they use it economically in order not to deplete the supply.

Here is a recent example. A hugely successful Texas company, with more than $100 billion in revenue last year more than IBM or AT&T; issued this statement: "Financial statements for (1997 through 2000 and the first two quarters of 2001) and the audit reports relating to the year-end financial statements for 1997 through 2000 should not be relied upon."

And why should the financial statements of Enron, the Houston-based heavyweight champion of energy trading in the U.S.'s deregulated electricity and natural gas markets, "not be relied upon?"

For starters, Enron's net income for those three years was $591 million less than Enron reported to its investors, its creditors, its employees and the American public.

Add to that "Big Lie" the further embarrassing disclosure that Enron's own chief financial officer had formed and operated two partnerships which, through their arrangement with the company, stood to profit at Enron's expense. Does the term conflict of interest come to mind?

Enron, under the strong leadership of Chairman and Chief Executive Officer Kenneth Lay, had pioneered and dominated the field of buying and selling contracts for electricity and natural gas. In August 2000, when Ken Lay's close personal friend, Texas Gov. George W. Bush, was nominated for the White House at the Philadelphia convention, Enron's stock sold for $90 a share. Today, that stock is worthless.

Along the way, Lay had been more than helpful to Bush, whose political campaigns had received $2 million from Lay and his Enron colleagues. According to The Wall Street Journal, the Enron fleet of corporate jets had been made available for political travel for Bush. Lay had also hired at Enron two of the first President Bush's former Cabinet officers, Secretary of State James A. Baker III and Secretary of Commerce Robert Mosbacher.

Never unappreciative, the Bush folks demonstrated their gratitude to Lay for his help and respect for his judgment. Only one energy industry executive was granted a private, leisurely, one-on-one session with Vice President Dick Cheney (also a close personal friend), the head of the Bush administration's energy task force. That's right: Enron.

The man from Enron also had a private one-on-one in the White House with another friend, presidential counselor Karl Rove a meeting complicated by the fact that Rove then held Enron stock he had valued between $100,000 and $250,000. In addition, Lay and other Enron executives interviewed the prospective Bush appointees to the Federal Energy Regulatory Commission, the agency with potential oversight of Enron's activities.

Sadly, this is one model of contemporary corporate leadership that demonstrated brutal indifference to Enron's 20,000 employees, for whom this will hardly be a very merry Christmas. But wait consider the humane and truly enlightened CEO of Malden Mills in Lawrence, Mass., the admirable Aaron Feurstein.

On Dec. 11, 1995, with the temperature hovering just above zero, a fire whipped by 45 mph winds destroyed three entire buildings, totaling 600,000 square feet of factory floor, at the 95-year-old Malden Mills. Malden Mills has long been the principal provider of Polartic, a lightweight thermal material, to LL Bean and Patagonia.

Feurstein, then 70, announced among the smoldering embers that he would not do the shrewd thing and pocket the billions in insurance and either retire or move his company to a place where there were no unions and 11-year-olds were not prevented by meddling public officials from earning 35 cents an hour. Not only did Feurstein immediately begin rebuilding, he gave each of his 3,000 employees a $275 Christmas bonus and then paid the idled workers their full salary for December, February and March.

Wasn't that impractical? No, Feurstein told Paul Solmon on PBS's "NewsHour": "I consider our workers an asset, not an expense. ... It would have been unconscionable to put 3,000 people on the streets." Why not leave down-at-the-heels Lawrence? "You have a responsibility to the community."

Doing the right thing cost Feurstein $25 million, and today that is the amount Malden Mills must borrow to meet creditor obligations.

My knowledge of corporate finance is nonexistent. But I know a decent and noble man when I see one. This year, whether asked for or not, everyone on my Christmas list will receive a gift with a lot of Malden Mills Polartic in it. It's the least we can do.

Mark Shields is a columnist for Creators Syndicate.

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