An American Lion

Kitty!

The Government Accountability Office has been paying attention to who gets chosen to be a “monitor” at a company that runs afoul of the law. I have always regarded regulation of the markets as a necessary step towards common sense. It’s not capitalism if the markets run wild. A man has to know that where he puts his money is on the up and up, otherwise, no man will risk loss in order to gain an honest profit. Show me the men who make an honest profit, and I will show you the angels of capitalism.

The best way to describe a monitor appointed by the Department of Justice to go and peek over the shoulders of everyone in a corrupt or incompetently-run business is to describe that person as a Poindexter. Oh, they might look cool, and dress cool, but they’re Poindexters. And they probably snoop around a lot. Anyway, the GAO says that they are few and far between:

Recent cases of corporate fraud and mismanagement heighten the Department of Justice’s (DOJ) need to appropriately punish and deter corporate crime. Recently, DOJ has made more use of deferred prosecution and non-prosecution agreements (DPAs and NPAs), in which prosecutors may require company reform, among other things, in exchange for deferring prosecution, and may also require companies to hire an independent monitor to oversee compliance. This testimony addresses (1) the extent to which prosecutors adhered to DOJ’s monitor selection guidelines, (2) the prior work experience of monitors and companies’ opinions of this experience, and (3) the extent to which companies raised concerns about their monitors, and whether DOJ had defined its role in resolving these concerns. Among other steps, GAO reviewed DOJ guidance and examined the 152 agreements negotiated from 1993 (when the first 2 were signed) through September 2009. GAO also interviewed DOJ officials, obtained information on the prior work experience of monitors who had been selected, and interviewed representatives from 13 companies with agreements that required monitors. These results, while not generalizable, provide insights into monitor selection and oversight.

Prosecutors adhered to DOJ guidance issued in March 2008 in selecting monitors required under agreements entered into since that time. Monitor selections in two cases have not yet been made due to challenges in identifying candidates with proper experience and resources and without potential conflicts of interests with the companies. DOJ issued guidance in March 2008 to help ensure that the monitor selection process is collaborative and based on merit; this guidance also requires prosecutors to obtain Deputy Attorney General approval for the monitor selection. For DPAs and NPAs requiring independent monitors, companies hired a total of 42 different individuals to oversee the agreements; 23 of the 42 monitors had previous experience working for DOJ—which some companies valued in a monitor choice—and those without prior DOJ experience had worked in other federal, state, or local government agencies, the private sector, or academia. The length of time between the monitor’s leaving DOJ and selection as a monitor ranged from 1 year to over 30 years, with an average of 13 years. While most of the companies we interviewed did not express concerns about monitors having prior DOJ experience, some companies raised general concerns about potential impediments to independence or impartiality if the monitor had previously worked for DOJ or had associations with DOJ officials. Representatives for more than half of the 13 companies with whom GAO spoke raised concerns about the monitor’s cost, scope, and amount of work completed—including the completion of compliance reports required in the DPA or NPA—and were unclear as to the extent DOJ could be involved in resolving such disputes, but DOJ has not clearly communicated to companies its role in resolving such concerns.

Independence and impartiality shouldn’t be considered at all—a company is being monitored because it couldn’t play fair. What the Department of Justice really needs to do is find a hardass with a genius for numbers to watch a company that has been ripping off shareholders.

Fraud is a criminal state of mind and should be pursued with that in mind. Fraud indicates a willingness to ignore the law; hence, the presence of the law should be much more pronounced, provided someone has already determined that allowing the company to stay in business is a viable alternative to shutting it down.

Mismanagement is a whole other animal. An entirely different kind of monitor should be watching out for financial fraud than should be trying to watch over a mismanaged company. Perhaps we should develop a farm system for successful ex-CEOs and managers, men and women with highly valuable experience who could be adequately compensated under a program to take their expertise and help American businesses stay within the lines and help them run their operations more efficiently. It’s one thing to punish; it’s another thing to oversee and instruct.