Just when you thought it was safe to go back into the stock market, bang, another corporate titan is brought low by association with wrongdoing.
Since Enron’s collapse in 2001 revealed how large the corporate appetite for accounting fudge could be, the US has suffered the collapse of Andersen, the auditing firm, the WorldCom scandal and, which ended in the largest bankruptcy in American history, and indignities at the likes of Tyco, Xerox and Global Crossing.
Europe lost its last claim to the business world’s moral high ground when Parmalat, the Italian food company, subsided into a multi-billion-euro accounting hole. Prosecutors last month demanded that 29 people and three financial institutions face trial over the affair.
The continent’s place in the dodgy bean-counting league has also been supported by Adecco and Alstom, which revealed accounting problems, albeit at US units, and MyTravel, the UK tour operator which two years ago warned of bookkeeping errors.
Advertisement
Today highlighted a further probe, into Vivendi Universal, the French film, television and internet company Jean Marie-Messier built on a utility’s foundations, but which suffered deeply when the bursting of the dot.com bubble took the virtues of TMT – technology, media and telecoms – investment with it.
French prosecutors in October 2002, shortly after M Messier’s departure from Vivendi, opened an investigation into dealings in Vivendi shares after the September 11 attacks turned a TMT retreat into a rout. It is alleged that Vivendi spent more than €1 billion, above authorised volumes, propping up its shares.
Guillaume Hannezo, the company’s former financial director, faces charges of insider trading, involvement in stock market manipulation and putting out false information, relating to a disposal of Vivendi stock in December 2001 shortly before a fall in its price.
M Messier was this morning taken into custody for questioning as prosecutors continued efforts to clarify Vivendi’s share transactions.
M Messier’s acceptance of police hospitality will provoke headlines and, by reviving concerns of corporate malpractice, hurt investor confidence worldwide. M Messier was, after all, once France’s most famous executive. When he pulled off a $34 billion merger with Seagram, President Chirac rang M Messier to congratulate him.
Advertisement
M Messier’s autobiography was entitled J6M.com, with the ms standing for “Jean Marie-Messier moi meme, maitre du monde”, or, in English, “Jean Marie-Messier, me myself, master of the universe”.
Yet the Vivendi investigations are a reflection over past boardroom practice, not the more sober mentality which, it must be hoped, would prevail in hessian-lined corporate times.
JK Galbraith, the economist, identified a lagging cycle of corporate morality in his book The Great Crash, which discussed embezzlement in Wall Street in the 1920s. He said that there was always an “inventory of undiscovered embezzlement”, the value of which he called the “bezzle”.
In good times, the bezzle expanded, as prosperous investors dropped their guard.
In bad times, once wrongdoing has been exposed, the bezzle shrank. “Audits are penetrating and meticulous,” Mr Galbraith said. “Commercial morality is enormously improved.”
Advertisement
If his analysis is correct, we should be enjoying a time of corporate virtue. The Sarbanes-Oxley Act has brought wide reform of US corporate governance. Eliot Spitzer, the New York attorney general, has brought humility even to Wall Street’s mightiest.
In the UK, directors were two weeks ago warned of the dangers of acting in a cartel, while the Financial Services Authority has proved a behemoth of watchdogs.
If there is a danger, it is that Brussels, hampered by national boundaries rather than will, has struggled to improve corporate governance standards EU-wide.
Now is the time tighten the red tape before shares rise, the corporate morality cycle turns and the bezzle again enjoys perfect breeding conditions.