Reform is in the air, and local companies put it to work for them

In 1904, journalist Ida Tarbell wrote that whenever people shrugged off corporate misdeeds, they'd use the term 'It's business.' The term came to connote what Tarbell called 'hard dealing, sly tricks and special privileges.'

Nearly 100 years later, 'It's business' still indicates fat-cat malfeasance. The difference, though, is that today such practices are not as easily excused.

The past year's spate of corporate scandals at Enron Corp., WorldCom and other headquarters has placed execs under freshly polished microscopes, where they're scrutinized by investors, consumer groups, employees, retirees and anyone else who fears being 'Enron-ed.'

'What businesses like Enron have done is no better than the guy doing three-card monte out on the streets of Portland,' said Ben Bycel, vice president of the Washington, D.C.-based consumer group Common Cause.

The resultant landscape has brought tighter government regulations and innovative efforts to regain investors' trust.

Along those lines, companies soon could elect to seek a new form of ethical certification under consideration by a national corporate watchdog.

As Portland area public companies sort out the various corporate governance issues, they're also seeking to adhere to the Sarbanes-Oxley Act of 2002, which Congress passed two months ago. The measure aims to ensure that corporate disclosure statements Ñ including reporting on earnings and spending Ñ are both frequent and accurate.

For some companies, the current climate has its benefits. Beaverton-based Planar Systems Inc., for one, can better tout its strict executive compensation rules, which place its top executive at the end of the reward line.

Then there's Vancouver-based Ethicspoint Inc., which is marketing its software products as Sarbanes-Oxley compliance tools.

Keeping execs in check

Ethicspoint is pushing a Web-based reporting system that allows employees to inform executive-level leaders of potential corporate wrongdoing. The Ethicspoint system is installed on all employees' desktops and operates through a company's intranet.

The hook is that informants can blow the whistle anonymously, said David Childers, Ethicspoint's chief executive officer.

'When someone places a report, we take no cookies,' he explained, referring to files that can be used to identify a computer user. 'We're committed to being confidential.'

For a company with fewer than 40 employees, the system costs around $300 yearly.

The link to Sarbanes-Oxley, Childers noted, comes via the act's requirement that all publicly traded companies offer a confidential or anonymous vehicle for reporting financial abuses.

Whereas Ethicspoint could earn scandal-related business, Planar Systems' ultrastrict executive compensation rules could attract ethics-demanding investors.

Under the plan, Balaji Krishnamurthy, Planar's chief executive officer, does not collect any bonuses until shareholders, rank-and-file employees, managers and other officers receive their fair share.

The company also requires its board members to purchase stock at market price.

'We've done this for the 18 months I've been here, but in the last six or nine months, with corporate governance becoming a buzzword, it's getting a lot more attention,' said Stewart Clark, Planar's investor relations director.

Krishnamurthy still does quite well: He made $1.1 million Ñ including $301,000 in exercised options Ñ in fiscal 2001. The area's highest-paid exec in 2000, Lattice Semiconductor's Cyrus Tsui, collected more than $17 million that year in salary, bonuses and options.

Frank Navran, principal consultant with the Ethics Resource Center in Washington, D.C., said Planar has the right idea. In closely following compensation developments, he has collected tips for investors who want to ensure they are investing in ethically run companies.

Navran said the Ethics Resource Center has discussed developing a system that would accredit companies that employ ethically sound business practices, much like an ethics Good Housekeeping Seal of Approval.

Any such program, said Common Cause's Bycel, would center on the degree of a given company's disclosure policies.

'Disclosure is like turning on the 500-watt light bulb: It's important in any kind of reform,' Bycel said. 'And we need severe penalties for not (disclosing information), not just financial slaps on the hand.'

Local large companies such as Intel Corp. say they subscribe to the open-book accounting philosophies. Hillsboro-based spokesman Bill MacKenzie attributed the company's so-far clean slate to Intel's consistent accounting methods.

'We've been doing things the same way since 1968,' he said.

Other local companies say they're simply creating more oversight in hopes of reassuring nervous investors. Electro Scientific Industries Inc., for instance, has created a Corporate Governance and Nominating Committee to assess ESI's ethical policies and board processes.

'We've not changed fundamentally the way we do business, but in this environment, the new committee seems appropriate,' said ESI spokesman Fletcher Chamberlain.

Navran said such moves will help stem the tide of corporate fraud. However, nothing, he warned, will stop it.

'We'll never see the end to corporate scandals until we see an end to human nature as we know it,' he said. 'Unfortunately, corporations are made up of people who are greedy, selfish and stupid. And once you get someone who's a combination of all three, they'll do things that are wrong.'

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