Week in Review

April 5, 2013 11:02 pm

Week in review, April 6

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Former Enron CEO Jeffrey Skilling listens to questions after being sentenced on fraud and conspiracy charges Monday, Oct. 23, 2006, in Houston. Skilling was ordered Monday to serve 24 years and four months in prison, the harshest punishment by far in Enron's scandalous collapse. (AP Photo / Houston Chronicle, Brett Coomer)©Getty

The US Department of Justice notified parties that it was negotiating with Skilling over his sentence

A round up of some of the week’s most significant corporate events and news stories.

Corporate person in the news: Jeffrey Skilling

In 2006, Jeffrey Skilling took the stand in a Houston courtroom where the former Enron chief executive faced charges of running a massive accounting fraud and declared: “I will fight those charges until the day I die,” writes Kara Scannell in New York.

Seven years after his conviction on conspiracy and fraud charges, Skilling is still fighting. And the fight may pay off.

Angry Birds fly off shelves

angry birds toys

Almost 50 years to the day since Alfred Hitchcock’s The Birds landed in cinemas, the Finnish group behind the Angry Birds phenomenon offered a glimpse of a future beyond mobile gaming. Toys and stationery based on the game have been flying off the shelves, helping Rovio to double sales last year ahead of a 3D feature film in 2016.

This week the Department of Justice notified Enron victims, shareholders and former employees that it was negotiating with Skilling over his sentence. The 59-year-old has served six years of a 24-year sentence in a federal prison outside of Denver.

If a deal is reached with prosecutors then the one-time poster child of 1990s corporate scandals may be released early.

Skilling, son of a sales manager for a valve company, was a top student at Harvard Business School and followed the well-trodden path into a career at McKinsey consultancy. Enron was a client of McKinsey and that is where he met Ken Lay, who went on to become chairman of the energy group.

In 1990, Skilling jumped ship to join Enron. Under his leadership, Enron morphed from a natural gas pipeline business into a powerhouse trading operation. It was the darling of Wall Street and Washington.

While Mr Lay was more genial, Skilling was viewed as Enron’s cheerleader and his brash, in-your-face tactics soon became the culture of the energy group. Under their stewardship, Enron grew to be the seventh-largest US company by revenue and the world’s largest energy trader.

For this success, Skilling was paid handsomely, making more than $100m in compensation and stock profits. Yet in August 2001, only six months after being named CEO, he abruptly resigned spurring questions over the company’s finances. Four months later, Enron collapsed into what was then the largest bankruptcy in US history and federal agents were swarming through its headquarters in Houston.

KFC taps mobile phones

KFC restaurant in Beijing, China

Not content with having its customers finger-lickin’, Kentucky Fried Chicken wants punters to start finger-tappin’ as they use their mobile devices to pay for the Colonel’s fried fare. The fast-food retailer joined the likes of McDonald’s and Starbucks by launching a mobile payments system this week at 10 UK outlets.

The criminal investigation took its toll. Skilling was drunk and got into a fight at a New York cigar bar in 2004 that landed him in hospital.

In the end, more than two dozen people were prosecuted for the fraud. Skilling and Mr Lay were charged in 2004 and two years later when he faced a jury, Skilling took the stand. Over four days he told jurors that nothing was wrong with Enron, and blamed its collapse on short-sellers and a hostile media.

He spent tens of millions of dollars on his criminal defence: hiring a team of 20 lawyers and paralegals from O’Melveny & Myers.

Skilling was sentenced to 24 years in prison. Mr Lay died of a heart attack before he was sentenced. In the past six years both of Skilling’s parents have died and his son, the youngest of his three children, was found dead from an apparent drug overdose.

All the while, Skilling has filed numerous appeals. The US Supreme Court heard his case and sent it back to an appeals court, which affirmed the conviction but ordered a resentencing.

His lawyers said they intended to file a motion for a new trial, stating they have uncovered new evidence, but have not said what it is yet. Meanwhile, Skilling is still fighting. Prosecutors, perhaps weary of continuing the war of words 13 years after Enron’s bankruptcy, are listening.

Salz report a ‘road map’ for culture change at Barclays

The mistakes of the past were once again in focus for Barclays this week with the release of a long-awaited review of the bank’s culture and values, writes Jennifer Thompson.

Anthony Salz©Daniel Jones

Anthony Salz

The review by Anthony Salz, a City lawyer-turned-banker, said Barclays should lower warped pay levels and end the bank’s “entitlement culture” to usher in a spirit of “transparency and candour”.

Mr Salz’s review, which he described as setting down a “road map for the future”, was commissioned by Barclays last July after the bank was fined £290m over Libor rate-rigging. The scandal prompted the resignations of chairman Marcus Agius, chief executive Bob Diamond and chief operating officer Jerry del Missier.

Barclays said at the time that it intended to implement the findings of the Salz review in full.

The report was the result of interviews with 600 staff, investors, customers and regulators over the past nine months.

In one conclusion on pay it said: “Elevated pay levels inevitably distort culture, tending to attract people who measure their personal success principally on compensation . . . Many interviewees [reported] a sense of an entitlement culture.”

The report, published on Wednesday, will act as an additional spur for governance and pay reforms already in train at the bank.

Antony Jenkins, chief executive since last autumn, in February announced his ‘Transform’ strategy review, targeting £1.7bn of cost-cuts and a drive to make the bank’s culture more ethical.

SEC and Bloomberg boost Twitter’s ‘news feed’ status

Twitter’s stream of pithy, instantaneous messages has already become an informal newswire for many users, but two announcements this week boosted its status as a news source, writes Andrew Edgecliffe-Johnson.

On Tuesday, the US Securities and Exchange Commission said companies could use social media sites such as Twitter and Facebook to distribute their news, as long as they tell investors in advance which sites they plan to use.

The ruling followed a probe into Netflix, whose chief executive wrote on his Facebook page last July that the digital video company’s monthly viewing had surpassed more than 1bn hours.

The decision enraged some traditional distributors of market-sensitive information, such as Business Wire, which said it threatened the “level playing field” at the core of Regulation Fair Disclosure.

But Bloomberg, the leading financial data provider, jumped on the news to accelerate plans to integrate the Twitter accounts of a select group of companies, officials, economists and bloggers into its terminal users’ news feeds.

SuperDerivatives’ smaller DGX market data platform has made similar moves, and websites such as StockTwits track Twitter sentiment, but Bloomberg’s decision could transform the site’s value for traders.

The value of Bloomberg’s move was shown on Friday when the first word of the latest figures from the Bureau of Labor Statistics came from the BLS’s Twitter feed.

Past deals haunt HP as chairman steps down

Hewlett-Packard is on a five-year plan to transform the struggling PC maker, but the resignation of its chairman and its longest-serving directors this week shows past performance is still at the forefront of shareholders’ minds, writes Chris Nuttall.

Hewlett Packard

Ray Lane stepped down as executive chairman after being re-elected with only 59 per cent support from shareholders at HP’s annual meeting last month, compared with 96 per cent a year earlier.

John Hammergren and Ken Thompson, who became directors in 2005 and 2006, received 54 and 55 per cent respectively and are leaving the board. Mr Lane, who joined in 2010 and became non-executive and then executive chairman, will stay on as a director.

The low approval ratings followed a campaign from shareholder advisory services for their removal. The three men were key players in endorsing the previous chief executive, Léo Apotheker, in his decision to buy Autonomy for $11bn in 2011.

The UK software company has proved a disastrous acquisition thus far, with falling sales and HP writing down its value by $8.8bn last November.

Mr Hammergren and Mr Thompson were also around when HP bought the EDS IT services business in 2008 for $14bn. It wrote down the value of that acquisition by $8bn last summer. Ralph Whitworth, an activist investor who joined the board in 2011, is the interim replacement while HP seeks a “permanent non-executive chairman”.

Chinese media campaign forces Apple to apologise

Apple was forced to make a grovelling apology to Chinese consumers this week after a concerted media campaign against the iPhone maker in one of its most crucial markets, in a case that highlighted the challenges for American and European brands in the Communist country, writes Tim Bradshaw.

In a letter in Chinese published on its website, Tim Cook, Apple’s chief executive, apologised for “misunderstandings” over its iPhone warranties and stressed Apple’s “immense respect” for China.

Apple had faced two weeks of attacks in the Chinese media from its government-controlled CCTV channel and other outlets for being “greedy” and “incomparably arrogant”.

Despite speculation that the criticism was prompted by commercial or diplomatic motives, Apple pledged to improve its after-sales service and offer extended warranties not available in other countries. The display of contrition was well received by the state media in Apple’s second-largest market.

Closer to home, new figures showed Apple’s 30-year challenge to Microsoft’s Windows was bearing fruit as it gained share in the US.

Figures from researcher Gartner predicted consumers would buy more of Apple’s Mac and iOS devices than PCs, tablets and mobiles running Windows this year, while ComScore, an online measurement firm, said Apple held 39 per cent of the US mobile market in February, up from 35 per cent in November.

Fannie Mae results ‘mark turning point’ for housing agency

Fannie Mae underlined the recovery in the US housing market as the recipient of the biggest bailout in US history reported record net income of $17.2bn for 2012, writes Robin Harding.

Fannie Mae & Freddie Mac

The housing finance agency, which was taken into government conservatorship during the financial crisis, paid out dividends of $11.6bn to the US Treasury during the year. In 2011, it made a loss of $16.9bn and drew money from the Treasury.

Tim Mayopoulos, chief executive, said Fannie Mae had a “terrific 2012” which “marked a turning point” for the company.

The turnround in housing was clear as fewer households fell behind on their mortgage payments during 2012, reducing Fannie’s credit losses, and a pick-up in house prices let Fannie recover more money from selling foreclosed properties.

Fannie’s main business is to buy mortgages, provide a credit guarantee and then securitise them in the capital markets. It suffered huge losses in the financial crisis as mortgages that it backed turned bad.

The agency has drawn a total of $116.1bn in bailout funding from the Treasury in the form of senior preferred stock. That in effect gives the government 100 per cent ownership.

Fannie has now paid $31.4bn in dividends on those preferred shares so the government is still out of pocket $84.7bn.

The return to profit creates an odd situation in the effort to fundamentally reform US housing finance. If Congress acts to run the agencies down then it will face a budgetary cost in the form of lost dividends.

In brief

The humble half-time pie could soon be replaced at football grounds across the country by spicy “stinger wings” after US stadium caterer Centreplate acquired UK peer Lindley. The new entity will provide snacks at venues from White Hart Lane – home of Tottenham Hotspur – to the Making of Harry Potter tour in London.

RSA gave shareholders two bitter pills this week, months after slashing its dividend. The insurer handed two executives £1.5m in bonuses and shares for 2012, despite a fall in pre-tax profits. It also emerged that Deloitte, the group’s auditor, had earned big fees for non-audit work – raising fears of a potential conflict of interest.

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