How Many Execs Does It Take to Screw in a 10-K?

20, according to a survey on the impact of Sarbanes-Oxley; executives say they see little good coming from the new law, however. Elsewhere: Suspended HealthSouth CFO reportedly pleads guilty. Plus: Network Associates says DOJ on its case.


Nearly 85 percent of large U.S. multinational companies have changed their controls and compliance practices to meet requirements mandated by the Sarbanes-Oxley Act of 2002.

But just one-third of executives at those companies believe the new law alone will restore investor confidence in the capital markets or aid their companies’ ability to create shareholder value. This according to the PricewaterhouseCoopers Management Barometer.

“Confidence in our markets was built over decades, and will not be regained simply by the passage of a new law,” said Frank Brown, global leader of assurance and business advisory services at PwC.

While executives in the survey credited Sarbanes-Oxley with providing a consistent, formalized structure for corporate governance and control, Brown said that rules, standards, and frameworks can only do so much.

“It will take demonstrated commitment to transparency, accountability, and integrity to regain public trust,” he asserted.

More specifically, only 31 percent of executives surveyed said Sarbanes-Oxley will restore public confidence in the capital markets. About half said the law will have no impact in itself, while 19 percent were uncertain.

Among those expecting Sarbanes-Oxley to bolster confidence, 3 percent expect it will have a major influence, 19 percent a moderate impact, and 9 percent a small one.

In addition, just 32 percent of respondents said the new law will have a positive impact on their company’s ability to increase shareholder value, while 56 percent expect its impact on shareholder value to be neutral. Around 6 percent said it will have a negative impact.

Surprisingly, only 4 percent of the executives participating in the survey said the law had triggered substantial changes at their companies. A little more than half of the respondents said Sarbanes-Oxley simply formalizes what their company already has been doing.

Not surprisingly, 82 percent of the respondents said they are confident their company is in full compliance with the law, while just 13 percent said they had more to do.

  • Asked for their overall assessment, senior executives characterized Sarbanes-Oxley as:
  • A good and adequate response to problems in accounting and reporting (9 percent).
  • A good first step in company accounting and reporting, but more needs to be done (33 percent).
  • A well-meaning attempt, but will impose unnecessary costs on companies (42 percent).
  • Ill-considered and hastily passed legislation that won’t make any difference (15 percent).
  • A law that will actually harm rather than improve the capital markets (1 percent).

How costly is it to comply with Sarbanes-Oxley? Just 3 percent said it has been very costly to implement, but nearly 30 percent said it was somewhat costly.

But the respondents were worried about future implications of the act. More than 7 percent of surveyed executives believe that compliance costs will increase over the long term, with 12 percent expecting much higher future costs and 59 percent predicting somewhat higher costs.

The executives are also clearly sensitive to the potential personal cost of Sarbanes-Oxley. Nearly two-thirds (65 percent) said the act presents increased risk for their CEO, CFO, and other key executives who are required to certify their company’s financial reports

Seventeen percent said those executives face much higher risk, while 48 percent said they face generally higher risk.

“Long-term costs and certification risks are the law’s twin lightning rods for executives,” said Brown. “Nearly 90 percent of senior executives are concerned about one or the other, and nearly half are concerned about both. It will take more time to determine if their concerns are well founded.”

Interestingly, those interviewed expect that an average of 18.6 executives (other than the CEO or CFO) will be needed to provide subcertifications at their company. Only 20 percent expect no additional subcertifications will be needed and 13 percent were not certain.

And how do the executives rate the new law? Well, it all depends upon their outlook on the cost of implementing the law and their evaluation of its impact.

Just 31 percent of those worried about higher future costs gave the law a positive overall evaluation, compared with a 70 percent positive response from those who see no additional future cost impact.

Suspended HealthSouth CFO Pleads Guilty

Another finance executive at a major company has pleaded guilty to committing fraud.

William T. Owens, who last week was suspended as chief financial officer at HealthSouth, was charged with filing false certification of financial information with the Securities and Exchange Commission, according to a published report. Chief executive officer Richard Scrushy is facing a similar charge.

Owens faces a maximum of 30 years in prison and up to $5.5 million in fines. His sentencing date will be set in about four months.

“He regrets the conduct that required today’s proceedings,” said defense attorney Frederick G. Helmsing, according to an account in Dow Jones.

Owens, 44, was said to have appeared relaxed and stood with a hand in his pants pocket during the hearing.

“As the most senior HealthSouth executive to admit to this massive accounting fraud, Mr. Owens’ cooperation in the investigation has helped us rapidly identify and understand the extent to which the company falsified its financial reports for the purpose of inflating its stock price,” said U.S. Attorney Alice Martin, according to reports.

Last week Weston Smith, another former CFO of HealthSouth, pleaded guilty to federal charges that he conspired to artificially inflate the health-care company’s earnings, and that he falsely certified that the company’s financial records were accurate.

Smith became CFO in August 2001, succeeding Owens, who at the time was named president and chief operating officer. Owens was previously executive vice president and CFO at HealthSouth. Before that, he served as the company’s controller for 14 years.

As reported, last week the SEC filed separate charges against HealthSouth and Scrushy, claiming they overstated the health-care giant’s earnings by at least $1.4 billion to meet or exceed Wall Street expectations.

Earlier this week, Robert Asti, who served as Symbol Technologies’s vice president of finance and operations for the Americas as well as vice president of worldwide sales and finance until his resignation in March 2001, pleaded guilty to securities fraud and conspiracy to commit securities fraud.

Former Assistant Treasurer Sentenced

Sticking with a theme: on Wednesday, Jacqueline M. McTair, a former assistant treasurer for JP Morgan Chase, was sentenced to more than seven years in prison on charges she stole $4.5 million from Columbia University and other customer accounts, according to the Associated Press.

McTair was also ordered to pay about $4 million in restitution, said the wire service, citing U.S. Attorney James Comey.

In SeptemberMcTair pleaded guilty to bank fraud, money laundering, and embezzlement for using her position at the banking giant to make unauthorized withdrawals from Columbia’s accounts.

Prosecutors charged that McTair, along with Ingrid Rijos and Veronica Bowes, who worked in the university’s student-services department, falsified phony slips to make it seem like they deposited $2.5 million. Instead, they kept the money.

McTair allegedly processed the phony documents and deducted the money from Columbia’s accounts.

Network Associates Accounting Probe Widens

More trouble for Network Associates Inc.

The software-security company said the Department of Justice has joined the SECin a probe of the company’s financial results from 1998 through 2000.

The news came Wednesday in a press release, when the company’s management announced it would restate its results for those three fiscal years “as a result of information obtained in connection with investigations currently being conducted by the SEC and Department of Justice.”

This is the company’s second restatement in less than a year, but it is the first time the software maker has admitted the Justice Department is looking at its books.

“The DOJ is involved at this point,” chief executive George Samenuk reportedly told analysts in a conference call later in the day. “They do have a different role than the SEC in this matter. I’m not going to comment on the scope of their investigation.”

The restatement stems from how Network Associates booked revenue from partners that also distributed its products.

Network Associates also stated it does not anticipate that the restatement will affect results for fiscal 2001 or subsequent periods.

Short Takes

  • Goldman Sachs Group Inc. issued $1 billion in 10-year global notes. They were priced to yield 5.253 percent, 130 basis points above comparable Treasuries.
  • Freddie Mac issued $2 billion in five-year global callable notes, priced at 99.845 to yield 3.534 percent, or 60 basis points over U.S. Treasuries.
  • Tupperware Corp. CEO Rick Goings owes the company more than $10 million for loans he received to purchase stock in 1998 and 2000, according to the company’s recently released proxy. At the end of 2002, Goings owed nearly $7.5 million for a $7.65 million loan he received in 1998 in order to purchase 400,000 shares of Tupperware stock. He also owed $3.1 million for a loan to buy stock under a 2000 management stock purchase plan.

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