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    Highlights for week ending July 27, 2002
  • Business Week (by Spencer Ante): The Deal Drought. Tech-service providers aren't signing many new contracts, and the ones in hand are being renegotiated and pared down. Excerpt: "Like so many tech outsourcing deals, the transaction looked great on paper. On Mar. 28, 2001, IBM put out a press release trumpeting a five-year, $112 million deal to handle all the computing needs of NeTune Communications, a Culver City (Calif.) startup that digitizes the production process for movie and TV studios. NeTune turned over everything to IBM, from running its computers that transfer digital images at high speeds to providing round-the-clock support to its PCs. No press release went out when NeTune renegotiated its contract less than a year later. Battered by the threat of an entertainment-industry strike, the September 11 attacks, and Hollywood's slow adoption of digital technology, NeTune cut back its business with IBM. Now, NeTune manages its own computers and uses IBM for just a few things, such as software maintenance. The value of the deal? 'It's under $10 million,' says Patrick Block, NeTune's chief technology officer."

  • MSN Money, Jubak's Journal. New earnings season, old tricks. Excerpt: "Halfway through earnings season, numbers look no more believable now than they did when the whole accounting crisis started. Some of these reports just don’t make any sense. Here’s what IBM Corp. told investors when it reported second-quarter earnings on July 17..."

  • Los Angeles Times: Pension Provision Aimed at Cash-Balance Plans. Excerpt: "Battle lines are being drawn over a one-paragraph legislative amendment aimed at protecting worker pensions when companies convert traditional pensions to so-called cash-balance plans. The amendment—tagged onto the Treasury-Postal Appropriations bill by U.S. Rep. Bernard Sanders (I-Vt.)—would keep the Internal Revenue Service from undermining existing rules governing the calculation of certain corporate pension benefits." ... "Sanders said he became involved in the cash-balance pension issue because IBM Corp. is the largest private employer in Vermont. When IBM converted to a cash-balance pension plan, Sanders was inundated with calls from workers contending the company had improperly cut their pension benefits in half."

  • Laid off in New York State? Garrett Lanzy points to information about unemployment benefits.

  • "retired_in_89" speculates on what former CEO Lou Gerstner might do if he was put in charge of homeland security.

  • Business Week: An Excerpt from The Great 401(k) Hoax: Why Your Family's Financial Security Is at Risk, and What You Can Do About It. Excerpt: "...most employees now realize their retirement income is more uncertain with a 401(k) than it would have been with the so-called defined benefit plans popular in the past—where employers promised to provide a set monthly pension, no matter what."

  • Business Week: Retire at 65? Better Change Your Plans.

  • Time: Everyone, Back in the Labor Pool. Eroding pension benefits, longer life-spans and a major meltdown in stocks add up to this: most of us will have to work well into our 70s. Excerpt: " A shrinking pension—or none at all—is something more Americans will have to get used to in coming years. The shift by employers from defined-benefit plans (traditional pension plans that guarantee income for life) to defined-contribution plans (the tax-favored, employer-sponsored savings plans such as 401(k)s that do not provide guarantees) is beginning to have a devastating effect. In 1975, according to the Labor Department, 29% of workers named guaranteed pensions as their primary retirement plan, and only 4% relied on 401(k)-type plans. By 1998, the most recently available data show, the numbers had shifted to 17% with guaranteed pensions and 21% with 401(k)s as their primary retirement plan."

  • The National Retiree Legislative Network (NRLN) stated mission is to "seek to secure federal legislation that will guarantee the fair and equitable treatment of retirees in private and public sector health and pension programs and which will improve the adequacy of benefits provided by such programs." NRLN's current top priority is to mobilize support for H.R. 1322, The Emergency Questions and Answers Retiree Health Benefits Protection Act of 2002. It was introduced by Representative John F. Tierney (D. MA), along with 53 (now 90) original cosponsors on May 29, 2001. The bill was drafted at the initiative of NRLN Members and will plug a major loophole in the federal law governing private health plans. It would prohibit a company from reducing or taking away health benefits promised and owed to their retirees. It would also require a company restore health benefits that were previously reduced or taken away after retirement unless a company could demonstrate substantial business hardship." Visit the NRLN Web site to learn more.

  • Boston Globe: Congress asked to review IT field, Engineer group upset over H1-B visas, job losses. Excerpt: "A national association of 235,000 engineers and computer scientists is calling on Congress to study the impact of the country's H1-B visa program, the recession, and the outsourcing of jobs overseas on the unemployment rate of engineers and other information technology professionals. In a letter mailed July 12 to Congress, the Institute of Electrical and Electronics Engineers Inc.-USA asked lawmakers to convene town hall meetings around the country to allow engineers to testify about their inability to find work even when they hold advanced degrees and are skilled in Java or C++, the programming languages most in demand." ... "Some US scientists have criticized the IT industry for seeking to increase the number of H1-B visas. Norman Matloff, a computer science professor at the University of California at Davis who has studied hiring at high-tech firms, has argued that companies hire only a fraction of US engineers who apply for jobs because they prefer less expensive foreign labor."

  • ComputerWorld: H-1B Is Just Another Gov't. Subsidy. Excerpt: "Despite big layoffs among IT workers and post-Sept. 11 concerns over the immigration system, advocates of H-1B visas aren't going away. Indeed, IT employers are lying low, hoping to quietly persuade Congress next year to permanently raise the annual H-1B visa limit above 65,000. And why not? Like most politically connected industries, IT employers have friends in Washington who are arguing to expand what is in truth a government subsidy."

This week on the Alliance@IBM Site:

  • Congressional Action Plan for Restoration of Retiree Benefits by John Kotson. Candidates for US Congress have been sending out questionnaires and requests for donations to retirees across the country. The questionnaires contain typical party level agendas. The real questions are; does a candidate have a plan to restore the benefits that have been stripped from thousands of retirees by greedy corporate executives. In order to support a candidate, retirees should understand their positions on four important topics...

 

Articles about corporate malfeasance:

  • New York Times commentary by Warren Buffett: Who Really Cooks the Books? Excerpt: "There is a crisis of confidence today about corporate earnings reports and the credibility of chief executives. And it's justified. For many years, I've had little confidence in the earnings numbers reported by most corporations. I'm not talking about Enron and WorldCom — examples of outright crookedness. Rather, I am referring to the legal, but improper, accounting methods used by chief executives to inflate reported earnings. The most flagrant deceptions have occurred in stock-option accounting and in assumptions about pension-fund returns. The aggregate misrepresentation in these two areas dwarfs the lies of Enron and WorldCom." If link is broken, view Adobe Acrobat version [PDF--35 KB].

  • Boston Globe: Bush's role in corporate fraud. Excerpt: "George W. Bush, private citizen, emulated his brother Neil. He became rich through a buyout of his interest in the Texas Rangers at a huge profit. How did he purchase that interest in the first place? He got a very large loan from a very friendly bank. How was the bank able to justify the loan? If at all, because of the market's valuation of Bush's shares in Harken. Why was he on Harken's board of directors and also a well-paid consultant? Because his name was Bush. Why was he able to sell his Harken shares for a profit? Because Harken committed a financial fraud that hid real losses and created fictional income. What was the nature of that fraud? It was a variant on the Enron and Lincoln Savings frauds. Harken insiders formed a entity which 'purchased' Harken's bad assets for a grossly excessive price. But Harken financed almost all of the sale. If the bad assets had stayed on the books, Harken would have had to report severe losses, threatening its survival and causing its stock values to plummet. George W. Bush is a wealthy man today because his business friends were willing to stoop to fraud to make him rich."

  • Business Week: To Expense or Not to Expense In the debate over stock options, expensing is picking up steam. Excerpt: "Many experts now conclude that stock option overload contributed to the accounting fiascos at companies such as Enron Corp. and WorldCom Inc. Eager to cash in their options, managers may have resorted to questionable accounting practices and hasty acquisitions to pump up earnings and revenues and boost share prices. Rather than align the interests of shareholders and management, options seem to have done the opposite: transferred vast amounts of wealth to executives, even as outside shareholders have suffered." ... " While CEOs like to note that more than 90% of those getting options are the foot soldiers in their companies, 80% of the value goes to the most senior executives. 'It's true that a lot more people are getting stock options today, but most of the benefit is going to managers,' says Corey Rosen, executive director of the National Center for Employee Ownership, an independent think tank."
    • Annex Bulletin: Sir Lou OutLayed Lay! Excerpt: "Since the start of the IBM insider selling spree in late 1996, Gerstner has disposed of nearly half a billion dollars’ worth of IBM shares (about $424 million) for an estimated pretax profit of about $345 million."

  • Business Week Commentary: This Reform Won't Kill Silicon Valley. Excerpt: "There's even less of a case to be made for large companies to use options as free money. Is there really any justification for Microsoft to get a $2.3 billion after-tax boost or Cisco to get a $1.7 billion free ride when they have billions of real dollars in the bank? Execs say options match up all a company's constituents. 'Stock options are an incredible mechanism to get employees, management, and shareholders all aligned,' says Scott G. McNealy, chairman and CEO of Sun Microsystems Inc. But studies by Paul Oyer, an associate professor of economics at Stanford University, show that for companies with over 100 employees, options provide no real incentive to anyone besides top execs because employees believe their efforts can't have much influence on share prices."

  • CNN/Money Magazine: TIAA-CREF makes option request. Institutional investor sends letter to 1,754 firms, urging them to consider expensing stock options.

  • Fortune: The Only Option (For Stock Options, That Is). Pretending they're free didn't work. Expensing them may be the silver bullet we're looking for. Excerpts: "Should we throw lawbreaking CEOs in jail? Of course we should. Could the SEC use more money to beef up enforcement? Well, duh. Do we need to figure out better ways to regulate and motivate the accountants who audit companies' books? That's a no-brainer. Do all that, yes. But as Washington self-righteously scrambles to right the wrongs of corporate America, let's not forget that the illicit book-cooking revealed so far at Enron, WorldCom, and others was trifling compared with the entirely legal book-cooking that most of corporate America engages in: lavishing stock options on top executives and not deducting them as expenses. It is, without a doubt, the mother of all accounting abuses."
"The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little." — Franklin D. Roosevelt
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