It has not been a happy time to run an international corporation. The continuing fallout from the collapse of the IT/Nasdaq bubble was compounded by the World Trade Center disaster of September 11. Mounting concerns about how companies calculate their earnings - and how efficient auditors are as watchdogs - culminated in the collapse of Enron, dragging one of the world's Big Five accountancies, Andersen, down with it.
Accounting issues have dominated the board rooms of the world's biggest companies, and dominated the decisions of potential investors. The debates provide important lessons for SA companies, who can learn from a distance.
"Enronitis," as the collective loss of niavite in the wake of the US's biggest corporate collapse has been dubbed, is looking contagious. Another accounting issue is how corporations treat the share options that form an increasingly important part of senior executives' remuneration. Conventionally, these are treated as being costless to the company; but this flies in the face of economic logic.
And it's not only how the issuing of option shares is treated. Following the separation of ownership and management, when companies came to be run by hired hands, share options were seen as a good way of giving managers and extra incentive to make the company perform. But performance, in this context, means performance in just one area: the share price. Not only that, it's the share price at the specific time (or times) the option can be exercised; what happens afterwards doesn't matter.
Far from being an incentive to managers to make companies perform well over the long term, therefore, options have precisely the opposite effect. And because share price performance over the short term is often closely related to the progress of earnings per share, there's a further incentive to boost that figure at the effective date, regardless of what happens afterwards.
Accounting is enough of an art, rather than a science, that there can be considerable scope for that. In the case of Enron, for instance, costs (and losses) were shifted off balance sheet, profits were brought on board. Timing is another variable: revenue can be brought forward, costs deferred.
None of these creative adjustments can be carried on indefinitely; at some stage - except in the case of out and out fraud - they have to come into the profit and loss account and/or balance sheet. But that moment can be delayed for surprisingly long, especially with complaisant auditors. And when the day of reckoning finally comes, the executives have cashed in their options - and probably locked themselves into long-term service contracts that it costs their employer another fortune to cancel.
One of the functions of auditors is to stop this sort of abuse. But as accounting firms built up their consultancy arms, auditors also lost their independence. Consultancy was more glamorous and more lucrative. Andersen's consulting arm, for instance, earned bigger fees from Enron than the auditing side, probably at a higher profit margin.
So stand up and fight a company over its accounting practices, and you risk losing not just the audit fee, but far more important consulting fees, as well.
Creative accounting is not the only corporate governance issue. There's also the role - and value - of non-executive directors. Do they really act as a watchdog for minority shareholders? And who wants to be a non-exec, anyway, with all the ever more onerous legal responsibilities?
Nor are accountants the only external professionals coming in for criticism. Investment analysts' notorious reluctance to issue "sell" recommendations may be less due to perennial overoptimism than to a desire not to offend corporate clients and the breakdown of "Chinese walls" with the investment houses' corporate finance arms - which increasingly ate the big profit earners since broking revenues have been slashed by the abolition of fixed commission rates.
The world's biggest stockbroker, Merrill Lynch, paid US100m, without admitting guilt, to settle an investigation by the New York District Attorney of allegations that its research material was not independent. Damningly, analysts were heard on taped telephone calls giving favoured clients very different (and less flattering) views on companies than than appeared in the printed versions.
Many commentators feel that the Thundering Herd was lucky to get off so lightly, and are convinced that similar practices could be found at most big investment firms. This may not have caused the long bull market of the 1990s, but it certainly inflated the mindless hysteria at the top of the bubble, and aggravated the subsequent inevitable reaction.
At a time when many corporations are combating tougher times by laying off staff, top executive salaries are surging, and the gap between the lowest- and highest-paid workers is wider than ever.
As one commentator acidly remarked, CEs are the only people in the world who, in effect, set their own remuneration. Companies' remuneration committees, which nominally set the scales, tend to be dominated by fellow CEs in whose interest it is to move the whole reward structure for their peers ever upwards.
And it's not just straight cash and rewards. Many companies make huge pension contributions on behalf of top staff. These tend to be tax-efficient, and can often be hidden away in small print in obscure notes to the accounts where only the super-diligent will track them down.
In short, the Nineties were the decade of the CE. At first in the US, but spreading into Europe, CEs became the business world's equivalent of pop stars, appearing on the social pages and TV talk shows, and assuming an air of authority on all sorts of topics unrelated to their managerial ability.
All this was fine as long as the party lasted. While company profits and share prices rose inexorably, who cared if top execs guzzled ever more greedily at the pork barrel? But when business conditions turned down, these excesses became intolerable. Moreover, critics started to wonder just how much of the profit growth was actually created by highly paid managers, or to what extent they were simply riding on the shirt-tails of the boom.
Execs who had courted publicity found, as pop stars do, that the limelight can be cruelly deceptive. Public opinion can be fickle; yesterday's heroes can be today's villains. And there have been high-profile casualties on both sides of the Atlantic.
For years, one of Europe's most admired businessmen was Percy Barnevik, who appeared to have transformed the Swedish-Swiss Asea Brown Boveri into a truly global powerhouse. The wheels started to come off when ABB's profits faltered, and Barnevik moved to another arm of Sweden's Wallenberg empire in what was announced as a redeployment but was widely seen as a demotion.
But what really destroyed his reputation, probably permanently, was when it became known that, before leaving ABB, he had without knowledge of the full board arranged a huge pension pay-off. So great was the storm that he had to pay part of it back. The affair had surprising repercussions for SA business, too; when it became known that another departing exec, Göran Lindahl, had arranged a similar, but smaller, deal, he felt it necessary to withdraw as chairman-elect of Anglo American.
The impact on ABB was dramatic: in just one year, it slipped from 172nd to 484th on the Financial Times list of the world's largest companies by market capitalisation. In cash terms, its market cap slipped from US30bn to $9,6bn (the effective date of all figures in the Top 500 this year is March 28, against January 4 in 2001).
Even the biggest aren't immune. Barnevik's US counterpart was "Neutron Jack" Welch, the successful boss of GE who retired last year. His private life, though, did him no favours. An affair with an editor from Harvard Business Review, 24 years his junior, broke up his marriage, sullying a reputation that repeatedly earned Welch the title "most respected CEO in America".
Denis Kozlowski, who built Tyco International into one of the world's biggest conglomerates, was forced to quit last month after rumour - later confirmed - surfaced that he was being investigated for tax fraud.
Now none of this adds up to a crisis for global capitalism - though globalisation is under siege, for other reasons. But it does mean that Big Business has to reassess its values and priorities. Being the biggest - whether by sales, profits or market cap - is no longer the only ambition. Social responsibility is no longer a luxury, just an adjunct to the PR strategy, but a key part of how a company presents itself .
This new mindframe is not reflected yet in the rankings of the world's biggest companies. It' s a major shift in social values, but it will take some time to impact at this level. Welch's old firm, GE, remains the highest-priced company, but even its market cap has fallen from $477bn to $372bn.
Microsoft has edged Cisco Systems out of second place. Microsoft's problems with the US Justice Department have been shrugged off by the markets; it moved up from fifth as its own market cap firmed from $258bn to $327bn, and the gap between it and GE is thus just $45bn, against the $173bn gap between GE and Cisco last year. It has since narrowed further; Microsoft could well top next year's list.
The biggest casualty of the year, of course, was Enron, ranked 89th a year ago. Telecoms group Global Crossing, 278th last year, also dropped out after filing for bankruptcy. Broadly, the lists were characterised by setbacks for "New Economy" IT or media stocks, another big decliner being French-based Vivendi Universal, down from 66 to 462. The standing of its CE, Jean-Marie Messmer, has plummeted accordingly. Europe's other big media disaster, Germany's Kirch group, does not figure in the FT Top 500 list, but the UK's Reuters and Pearson also fell back.
Longer-established technology groups, however, didn't do so badly. German software firm SAP, for example, rose from 310 to 73. But overall, market cap of the IT constituents of the Top 500 almost halved, from $2,7 trillion to $1,4 trillion, pushing it down from first to fourth-biggest sector, behind banks (2,1 trillion), pharma/biotech (1,6bn) and telecoms (1,5bn). Significantly, all these values are lower than a year ago, and the same is true if one classifies the companies by country: the US remains dominant, with 238 of the 500 (2001: 239); their value fell from 10,9 trillion to $9,3 trillion, but this 14% decline held up better than market caps in Europe and, especially, Japan.
The exception in Europe was Russia, which had no representation for three years, but its economic recovery and the strength of the oil & gas sector have brought it four entries this time. Conversely, Scandinavian countries underperformed the rest of the continent, as groups such as Nokia and Ericsson suffered from the bursting of the telecoms bubble.
If the representation of the US is virtually unchanged, the same is not true of other regions or countries, as global economic power and prosperity shift. Japan, for instance, had 77 representatives just two years ago, 64 last year, and now 50. But the rest of the Asia-Pacific region rose from 25 to 30 last year, and Latin America doubled, to eight. Europe also edged lower, though by only two, to 152.
But perhaps, for us, the saddest omission is SA. There is no longer a single company regarded as SA-based in the entire list. Indeed, this means there is not a single representative from the entire African continent, the only blank spot on the map. Last year, there was one, Anglo American; it's still there, at 176, but attributed to the UK. BHP Billiton (113) is Australian/UK; Richemont (376) Swiss; De Beers, of course, is now subsumed within Anglo American, aiding that company's rise from 221 a year ago.
If the African renaissance or the New Partnership For Africa's Development are to take on any meaning, Africa - and specifically SA - will not only have to develop companies that are world champions, it will have to persuade them not to emigrate.