The change in corporate America

New York City – President Obama’s campaign slogans of “Change we can believe in” and “Change we need” have become realities that he would need to implement. The global crisis is forcing Americans to change their lifestyles, especially the way they run their businesses. Excesses by executives brought about the most serious global meltdown in the last 40 years, and is now spreading all over the world like a virus. No one could have ever expected that Citigroup – one of America’s most powerful banking institutions, would crash harder than a ton of bricks. As pundits were saying, it was unthinkable that the price of Citibank stocks would now be worth less than a Starbucks Mocha Frap, plunging to an all-time low of less than one dollar per share due to bad debts and risky assets amounting to $306 billion.

And to think that Citibank – described by an irate Republican senator Richard Shelby as a “problem child” – reached a 52-week high of $27.35 in April last year and an all-time high of $57 per share in December 2006. Even a slight surge in stocks after the Citigroup CEO’s memo, announcing some profit during the first two months of the year, was not enough to calm fears in the market. In fact, some people on Wall Street are saying that Citigroup will “no longer exist” in 12 months. Republican legislators actually want to close it down, along with other big banks in trouble. “If they’re dead, they ought to be buried,” Senator Shelby said.

Recent financial reports indicate that along with Citibank, losses from the Bank of America, HSBC, Wells Fargo and JP Morgan Chase had zoomed to $587 billion by December 2008. Federal Reserve chairman Ben Bernanke also warned about the need to strengthen financial regulatory measures to prevent the US economy from totally collapsing. After all, government can’t keep rescuing these big firms since US taxpayers end up footing the bill.

Another big blow to the US is American International Group (AIG) which is asking for another bailout even after receiving a total of $160 billion from government. AIG warned that the company’s collapse would be “catastrophic” for the international market, worse than the effects when Lehman Brothers went bust. Americans are naturally angry and resentful especially at the perception that AIG failed to change its ostentatious ways. Last year, barely a week after receiving $85 billion from government, AIG executives spent $500,000 partying at the exclusive St. Regis resort.

Of course, it all started when Eliot Spitzer – the former New York attorney general who was disgraced as governor after getting involved in a prostitution scandal – successfully went after Maurice “Hank” Greenberg and AIG for “cooking the books.” Greenberg used to travel like a US president with two identical Gulf Stream jets. He would send one with an advance party, while he treated the other as his personal jet, even installing an exercise machine so he could work out while he was on board the aircraft. Only his wife and dog were allowed to enter the private area while AIG executives were limited to just the front part of the aircraft – which ultimately led to Greenberg’s downfall because of hubris – the arrogance of power.

It wasn’t too long ago when executives like Greenberg would travel in high fashion, racking up hundreds of thousands in travelling expenses, showered with other CEO perks like memberships in the priciest country clubs. But as they say, how things have changed. AIG is now down on its knees, posting loss after loss, the latest of which was its $61.7 billion fourth quarter loss, described as the worst in US corporate history.

Looking back now, it seems like the Enron scandal was only the tip of the iceberg, a hiccup that should have warned US regulators that something was really amiss in Corporate America. But any which way you look at it, everything simply boils down to one thing: greed. These high-flying CEOs gave themselves golden parachutes, living ostentatiously, partying and spending as if there was no tomorrow. If one could recall, there was a huge public outcry when top executives of America’s “big three” automobile companies flew in to Washington with their corporate jets – ironically with a begging bowl in hand, asking government to save them from financial ruin. Yet people like Greenberg even have the temerity to blame the US government, criticizing that it botched the rescue and triggered the break-up of the company by forcing AIG to use part of the rescue money to pay up banking institutions and trading partners.

For now, the Philippines is still lucky because the effect of the global meltdown has not been completely felt, but the Legacy scandal is already an indication of the serious problems besetting the financial industry. The corporate shenanigans of Legacy confirmed that the Securities and Exchange Commission is not immune to corruption. Now everybody is going after the head of SEC commissioner Jess Martinez (an Atenean), who has been asked to go on leave and is now on a hold departure order. Needless to say, the Legacy scandal is not good for the country because it could trigger a collapse of the financial sector. According to information we received, Celso de los Angeles himself was the bank’s biggest borrower, putting up dummies and bloating real estate collateral to 10 times their actual value. He didn’t put in even a single centavo as capital when he bought the 14 rural banks – because he used the banks’ own funds to pay off the sellers. As a popular Tagalog saying would put it, “ginisa sa sariling mantika.”

No doubt the unfolding Legacy saga will precipitate changes in the country’s business environment. Hopefully, legislators will be able to come up with laws that would put stronger regulatory controls in the financial system. With the way things are going, it won’t be surprising if the whole world will soon see – starting with Corporate America – the meaning of “free enterprise” changed into “restricted enterprise.”

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