There must be a better way

Business practices are in need of an overhaul. Perhaps it’s time for the old school to give way to new management. Of course, by new management, we mean better management.

There is a lot in the news about Hollinger International, and it appears management was not concerned enough about expenditures that were made and maybe should not have been made. But it seems a witch hunt is under way, and the shareholders are not going to benefit by legal wranglings that are going to go on for years.

Choosing a scapegoat and attempting to punish someone for business practices that were accepted blindly for years does not seem to be the right path to follow. Many large companies have operated in the same manner in the past.

It has always been a business adage that you need to spend money to make money. Another is that contacts are crucial: “It is not what you know, but who you know” that can be vital to a business.

This notion is hard to change because generally it still works. Ethically, it is time to crack down on the extravagant expenditures that some companies and management have had the freedom to enjoy. Governments should also be more strict with their budgets. But isn’t there a better way to resolve what has happened in the past other than through lengthy court proceedings that are going to cost taxpayers and shareholders millions of dollars?

It isn’t surprising that some directors and senior officers are preparing to step down before their flagrant spending catches the inquisitive eye of disappointed shareholders. Shareholders are there to make money, and a blind eye may be turned while a company is performing well, but if profits are not steady and stock prices do not rise, shareholders can become fickle.

After the Bre-X fraud was uncovered, it did not take long to come up with National Instrument 43-101, which lays down rules and standards for public companies regarding disclosure to the public. Isn’t it time to clean up the financial side of things?

Rules have to be laid out; only then can penalties be defined. The legal charade currently in place sees individuals and companies being sued for extravagant arbitrary amounts. To counter this, vast sums of money are spent on defence and counter-suits.

In a recent article in the Toronto Star, David Olive notes that the average annual pay for Fortune 500 CEOs is currently $7.1 million. Between 1996 and 2003, the management fees paid out by Hollinger International to the top five of its officers, including Black, work out to an average annual pay of about $6 million. An analyst has not found “airtight cases of transactions that are clearly illegal.” Yet Hollinger International has now spent about US$25 million (by Black’s estimation) on legal, consulting and other fees in a bid to make its US$1.25-billion lawsuit against Black, his companies and his colleagues stick.

Fiscal responsibility should not be a problem for companies that keep the interest of investors in mind, but business transactions are often complicated and solutions are not clear-cut.

It is hard to protect consumers who fall for get-rich-quick schemes without researching where their money is going. But new rules could save investors big bucks by putting every individual or company under tighter fiscal scrutiny. When is it going to happen? Let’s hope it’s soon.