There's a strange smell coming from the New York Times today—and we don’t mean that ikcy gas smell that has blanketed Manhattan. We mean the smell of Ben Stein's Sunday New York Times business section column. Ben, who used to write sensibly about public affairs, has lately become a sort of booboisie populist, coming out for a ban on management buyouts and foaming at the mouth when he tries to say anything about stock-option backdating. Yesterday's column was no different. If fact, it stunk worse than usual.
After comparing Steve Jobs to infamous bankrobber John Dillinger for his role in backdating at Apple, Stein goes absolutely bananas in describing the Sarbanes-Oxley reforms recommended by the Paulson committee on capital markets.
In particular, Sarbanes-Oxley was supposedly too strict in requiring audits of internal controls. This was supposedly a painful, unnecessary burden in a world where a corporate boss’s word is his bond and the word of any corporate boss is worth more than all the bonds in Christendom. And the Sarbanes-Oxley section on internal controls was supposedly cruelly tormenting Wall Street to the detriment of the whole world of decent people.
But hold on. Isn’t backdating precisely an example of a failure of internal controls? Haven’t we just found out that internal controls are far too lax, not too strict? For the Paulson committee to say that we need less stringency in corporate audits is a bit like the War Department saying we needed less watchfulness at our naval bases after Dec. 7, 1941. It’s also a bit like Willie Sutton saying it would be good as a matter of national financial policy to have fewer guards at banks.
Okay. Look. We need to address this directly to Ben. Are you listening, Ben? Good. Here's the thing. It's as if the bombing of Pearl Harbor happened, and yet not one ship sank. How is Apple doing after it's "Day of Infamy"—after it reported backdating? Just fine, thanks. In fact, shareholders seem mostly relieved that no one is seriously calling for Steve Jobs to step down. That is, most of the costs of backdating seem to spring from the "scandal" and not the underlying pricing of options. So, Ben, it's probably time to step down. Pearl Harbor was followed by a huge war in the Pacific that only ended when we erased a couple of Japanese cities—along with the people who populated them—from the map. Is this really the model you want to use for corporate governance?