The recent scandals on Wall Street have brought the art of finger pointing to new levels and forced regulators to examine the accounting practices, executive compensation and greed that drive big business. “Executives are screaming at auditors, general investors are screaming at investment bankers and investment bankers are screaming about research,” said Walter O’Connor, Ph.D., chair of the accounting department at Fordham Business. “The basic issue is the credibility of business.” A panel of prestigious business leaders met at Fordham’s Lincoln Center campus on Nov. 18 for a discussion titled “Ethics: Checking the Moral Compass,” during which they dredged the mire of corporate malfeasance searching for possible sources and solutions.
The speakers attributed the spate of recent scandals to cumbersome regulations, creative accounting and, ultimately, greed. Panelists included J. Kenneth Hickman (CBA ’51), C.P.A., a retired partner of Arthur Andersen, LLP; Sam Ranzilla, the partner-in-charge of the Securities and Exchange Commission (SEC) group at KPMG LLP; Elizabeth Fender, director of corporate governance at TIAA-CREF; Constantine N. Katsoris, J.D., a Fordham law professor; Brian J. Byrne, Ph.D., vice president for administration at Fordham; Gian-Carlo Laguzza (GBA ’92, Law ’96), a director at Fitch Ratings; Mario P. Torsiello (CBA ’78), chairman, president and CEO of Torsiello Capital Partners; and Robert Tucker, Ph.D., an associate auditing professor at Fordham.
The devil is in the details, according to panelists who criticized the tedious regulations that enable big business to seek out loopholes in the Generally Accepted Accounting Principles (GAAP). “I think some of the sins have been created by the accounting profession,” Hickman said. “The accounting profession has created this situation because it is catering to business, where people have to pick and chose which principle to use.” Hickman said accountants used to produce opinions for financial statements that read “fairly presented and prepared according to GAAP.” Nowadays, those opinions read “fairly presented according to GAAP,” suggesting that some firms use cracks in GAAP to produce creative statements that are perhaps misleading and ethically dubious, but not illegal. Katsoris said the accounting profession is not the only culprit. “We’ve all failed [the]investors lawyers, the SEC and the [Financial Accounting Standards Board],” he said. “Whenever [these government organizations]come up with tough medicine, they are beaten back by [big business].” Greed is really the guilty party Katsoris said. That is what drives executives to create unethical business deals for their own personal profit.
Executive compensation has also been under intense scrutiny recently as CEO salaries and benefits have been widely reported by the media. Unfortunately, institutional investors like TIAA-CREF share some of the blame for creating this trend. “One of the reasons we are where we are is because of companies like Enron where stock options are linked to income,” Fender said. “Institutional investors at one point encouraged [these]incentives.” Fender and other panelists suggested that unwieldy regulations should be replaced with principle-based accounting. Less burdensome regulations would cut down on the loopholes available to big corporations. However, Ranzilla pointed out that in a society as litigious as ours, many accountants and auditors rely on regulations to support their decisions. Katsoris suggested that the SEC and FASB should be independent agencies so that congressional lobbying by big business would not deter enforcement. Ranzilla said the business world needs professionals who will not stand for improprieties. What we have to have is a great character change for auditors, [tax]preparers and regulators.