Just when things seemed to be settling down a bit, along came Ahold and HealthSouth with yet more off-the-charts financial scandals to drag corporate trust through the muck again. It will take several reporting periods without a major financial scandal to restore investor confidence. But some say things are not as dire as they seem and that it’s important to treat companies like these as just a few bad apples.
The truth is no matter how much regulators strengthen accounting and corporate governance, they will never be able to prevent the kind of widespread financial fraud that seems to have occurred at HealthSouth. ‘It’s very difficult to protect against pervasive, collective fraud when a large number of people are working to cover it up,’ noted James Quigley, US CEO-elect of Deloitte & Touche, at a Conference Board seminar on restoring corporate integrity.
So why do lingering financial scandals make us so depressed? It could be that all the bad news is dragging us down, creating a collective state of gloom. This is essentially what former US President Bill Clinton suggested at the Conference Board’s April event. Addressing an audience of corporate heavyweights, regulators and journalists, Clinton spoke about how the 1990s created a false optimism. A booming economy with no perceived threat of terrorism masked the underlining corruption going on inside some of America’s corporate darlings. Now, Clinton says, we are experiencing the opposite: a false state of pessimism created by September 11, an economic slowdown, corporate scandals and political tensions.
But Clinton’s message is that there is good beneath all the bad. Beyond budget cuts, new rules and lack of business visibility, IROs are breaking new ground. In fact, as dismal as today’s market looks, it’s actually the ideal environment for testing (and building) a relationship with the Street. And, most importantly, investors still trust top IROs to deliver the information they need to make informed investment decisions.
Clinton’s point is that both attitudes – the 1990s’ hyper optimism and the current gloom – are false. The world doesn’t follow such extremes. Even when there is a conflation of bad news, it doesn’t mean everything is going to hell. But humans, like financial markets, are not rational. Our outlook is shaped by a number of realities and perceptions, which are both experienced personally and magnified through the media – it’s all either really good or really bad.
Maybe IR professionals need to remind weary investors that ‘good things are happening now, too.’ In fact, if we all repeat this phrase in our heads, the current state of gloom might lift a bit, allowing the bright side to shine through.
