Former Reagan Administration budget chief David Stockman is fighting to stay out of prison for the rest of his life as a result of a federal indictment over his stewardship of the defunct auto parts supplier Collins & Aikman. Stockman is essentially taking the same defense approach as former Enron executives Jeff Skilling and Ken Lay, which cannot be particularly comforting for Stockman. Although the entire Landon Thomas-authored profile of Stockman is interesting, the rendition of how Stockman’s professional life cratered has to be daunting for any businessperson engaged in taking big risks:
Rumors had begun to spread that Collins & Aikman was experiencing a liquidity crisis. On March 17 [2005], Mr. Stockman presented preliminary year-end results to investors. Badgered on the call by analysts about the firmís cash position, Mr. Stockman did his best to stay upbeat, while also laying out the challenges ahead.
On May 9, Mr. Stockman made a last bid to save his company, securing, he says, a promise from Chrysler, Collins & Aikmanís largest customer, to give the company better pricing. Mr. Stockman was ecstatic.
However, on that very afternoon, Mr. Stockman got a call from Dennis E. Glazer, a partner at Davis Polk. The law firm was now questioning whether Mr. Stockman gave overly optimistic forecasts during the March conference call.
Mr. Stockman defended himself, saying that he had provided sufficient caveats. But Mr. Glazer was not convinced. In its indictment, the government would charge that Mr. Stockman drafted the materials and made ìat least three material misstatements or omissions.î
Late the next night, Mr. Stockman received a call in his Troy, Mich., hotel room from Daniel P. Tredwell, his partner at Heartland. The board would ask for his resignation the next day. Mr. Stockman could not believe it. ìThe audit committee had taken over the company and delegated authority to a lawyer from New York wearing suspenders,î he says now. That night, he would add a third Klonopin anti-anxiety pill to the two he was taking each night to bring on sleep quickly.
Mr. Glazer declined to comment on the case, citing confidentiality.
The next day the board demanded his resignation.
ìLeave your office now and donít take anything with you,î Mr. Stockman recalled Mr. Glazer as saying.
It had happened so quickly that he could not even call a lawyer.
ìI was in shock,î he said. ìI had been with the company for 14 years ó I mean I had put this whole thing together. I had put these guys on the board, invested the money, owned the shares and they stabbed me in the back. It was like a Stalinist show trial.î
A week later, on May 17, Collins & Aikman filed for bankruptcy.
Have we now come to the point where a chief executive officer of a financially-troubled publicly-owned company cannot speak optimistically of the company’s prospects for pulling out of a tailspin because of the risk of a criminal indictment if the company cannot pull it off?
I’m curious what you read in that excerpt that suggests that Stockman’s side of the story is the most accurate here? Just because he *thinks* he provided sufficient cavaets does not necessarily mean that they succeed in making his rosy outlook legal.
Not having researched the specifics, maybe he did and maybe he didn’t. Dunno. But one critical aspect here that’s different than the Enron saga is that it was the BOARD that ran Stockman out in this version. So the Stalinist comparison, ironically, is to private sector board members that were acting in the free market. I’m guessing that might make Stalin’s rotting corpse crack a smile.
This is a travesty. Whatever Stockman’s personal qualities, his conduct as described in the article is certainly an every day occurrence in struggling businesses, public and private.
Making this kind of conduct criminal makes turnarounds impossible.
Greg, Stockman’s story has the ring of truth to it because the company’s financial problems were well known in the marketplace at the time of his statements. Moreover, the board’s report does not not sound much different than the Enron board’s Powers Report. Both documents serve primarily to protect the interests of board members, most of whom had at least tacitly approved the actions of the executive in question. In my experience, such reports are rarely objective.
Although the part of the article you quote doesn’t contain it, Mr. Glazer (the Davis Polk partner) represented KPMG, the Company’s auditor. I find it interesting that it was Mr. Glazer that called Stockman to question his statements on the call.