Following the fall of Tokyo exchange share market in the late eighties of the last century, Japan shares remain low with no signs for recovery after 15 years.
By the beginning of the new century American shares began sliding but analysts maintained the slide has reached rock bottom and that recovery was imminent. In their attempts to explain the slide, analysts have offered various justifications including the Sept. 11 attacks, the so-called war against international terrorism, anthrax and the “axis of evil.”
This may is an attempt to conceal the real face of the American economy by giving it a deceptive appearance.
The analysts have not told American and foreign investors that share prices and profits are grossly exaggerated. They also failed to say that many board members are holding the strings since they also occupy senior executive positions in their companies.
An independent board member required to spend at least 250 hours annually serving the company should have experience in accounting, finance and management. Many however, have no time to attend to their corporate responsibilities and lack access to vital information before blindly signing anything forwarded to them by management.
It is no surprise that the chairmen select many of the “independent” board members.
The House Financial Services Committee report that says fraud at WorldCom and Enron was committed with the knowledge of board members has shown that something is profoundly rotten at the heart of America’s big business. The committee cited examples of how company officials work; sleight of hand here, creative accountancy there.
In October 2000 the committee heard that of the $60 billion fixed assets of Enron $27 billion were registered outside the balance sheet. One off-balance sheet sharing operation earned the company more than $2 billion of profits in just six months.
Revenues were reported to have increased to $100 billion from $40 billion the previous year.
The internal auditing committee, made up of board members, knew of these irregularities and outside auditing firms helped the cover-up, reclassifying current expenses and massaging profits.
The American government called on companies to observe transparency to win investors’ confidence saying that the few who acted against the law didn’t represent the majority.
Such blandishments pleased interest groups and cleared the financial institutions of any responsibility. Yet the policy of preaching values and ethics amid a sea of financial scandals failed to impress the millions of shareholders and the press. With corporate America malpractice still echoing around the business world, the rest of us are kept guessing.
As for the Kingdom, we have yet to see the effect of these scandals on local bank funds invested in foreign shares.
The scandals prompted the administration to target on corporate fraud by creating new criminal penalties for company fraud and document shredding. It also called for an accounting oversight board with subpoena power and restrictions on accounting firms auditing corporate clients.
How do Saudi Public Stock companies, internal auditing committees, corporate laws and business regulations shape up in comparison? We know from the press that some companies make huge profits while others stagger to remain in the black. We also know that audit committees have members whose experience may be questionable or inadequate.
What they actually do is examine whatever is forwarded to them by the management in the absence of competent bodies that discuss details with the management. Saudi shareholders believe that a chartered accountant is only interested in his fees. Their job should be to serve shareholders and to serve board members by signing whatever documents are shown to them.
The general impression about successful public companies is that they succeeded because their ownership is confined to a limited number of shareholders who consider protecting company interests as their top priority.
Busying oneself elsewhere and failing to spare sufficient time to attend to corporate responsibilities is a major impediment to economic progress. Simultaneously, inconsistency and weak enforcement of business laws render these laws ineffective. Under theses circumstances we should not expect to attract investment, either local or foreign.
