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Partner discusses corporate governance

Matt Bramanti | Wednesday, February 18, 2004

Larry Rieger, a partner with South Bend-based accounting firm Crowe Chizek, spoke Tuesday in the Mendoza College of Business’ Giovanini Commons on “Good Corporate Governance: More than Compliance.”Rieger said the subject of his talk reflected the post-Enron corporate environment. “[Governance] is a topic that’s gone from the boardroom to the breakfast table,” he said.Rieger said that during his experience with major accounting firms, he’s been privy to the whole gamut of ethical situation.”In 29 years at Arthur Andersen, I was in on over 1,000 audit committee meetings,” Reiger said. “I’ve seen the good, the bad and the ugly in audit committees.” Reiger left Andersen after its collapse in 2002, when the firm was found guilty of obstructing justice in the Enron case by shredding documents related to the case. He then joined Crowe Chizek, the nation’s eighth-largest accounting firm, where he heads the corporate governance and risk management department.In his presentation, Rieger said the idea of corporate governance should be explicitly defined in order to be studied. “It’s the systems and processes an organization has in place to protect the interests of its diverse stakeholder groups,” he said.He emphasized that in situations of serious ethical failure, not only the shareholders suffer.”How many employees at Arthur Andersen lost their jobs? About 88,000,” Riegert said. “Governance failures don’t just affect the shareholders of a company; they affect the employees, customers, suppliers, retirees and the communities they’re in.”He went on to cite studies by the University of Michigan, Columbia Law Review, the Journal of Economics, Business Week and McKinsey & Company, saying that strong governance structures improve return on investment.”At the end of the day, the studies concluded the same thing: companies that fall in the good governance bucket outperformed companies that don’t,” he said.The 1999 Business Week study concluded that companies with the most highly rated boards average 51.7 percent in shareholder returns, while the worst boards dragged their companies down to an average – 12.9 percent return.Rieger said shareholders should maintain vigilance over their boards by demanding shareholder rights. “If you’ve got strong shareholder rights, and the shareholders don’t like what the board is doing, they can throw the board members out,” he said.He also stressed the importance of a company-wide ethical culture, saying that formal documents are not enough.”You can have all the ethics policies you want,” Rieger said. “If you don’t have accountability, it just doesn’t work.”As an example, Rieger cited instances in which the Enron board of directors issued waivers, specifically allowing for departures from the company’s code of conduct by Andrew Fastow, the company’s former CFO.Fastow engaged in the buying and selling of corporate assets in the name of partnerships he controlled – a conflict of interest under the Enron code of conduct. However, board members permitted the transactions, which allowed the Houston energy-trading giant to keep billions of dollars in debt off its books, while reporting artificially high profits.Rieger said that when he joined Andersen in 1973, accountability structures were in place. In one instance, Andersen decided to require stringent accounting rules for savings & loan institutions. Andersen’s interpretation was more conservative and strict than its major competitors. However, Andersen didn’t budge, even at the insistence of big clients.However, Rieger said that spirit in Andersen had been destroyed.”What happened over time is Arthur Andersen converted from professionalism to commercialism. We used to only do what was right, even if that means we lost a counter-attack.”He encouraged students to remain vigilant so that today’s brilliant executives don’t become tomorrow’s perp walks. Rieser alluded to scandals at HealthSouth, Parmalat and Martha Stewart Omnimedia, saying many corporations have unfortunately become solely self-serving operations.”The purpose of a corporation, in my mind, is to deliver a good or service,” Rieger said. “And the result is to make a profit. It happens in that order.”