Risky Business

It doesn't go so far as to call them the next Enrons or WorldComs, but a report from a Boston-based watchdog group claims Lucent Technologies, Raytheon, and EMC may be engaging in some of the same dubious business practices.

The three are among 11 firms named by the group United for a Fair Economy, which criticizes Lucent for laying off too many people, Raytheon for using one firm for both auditing and consulting work, and EMC for having a board of directors with unusually close ties to the company.

The criticism of EMC stems from a time when chairman Richard Egan, his wife, and his son all sat on the board, before Egan stepped down to become ambassador to Ireland. “Junior got to help set dad's allowance (and help determine his own inheritance),” United for a Fair Economy says in its report.

EMC spokesman Mark Fredrickson responds that, even though the company's previous board “would not be considered independent by today's standards,” EMC achieved the highest single-decade performance of any listed stock on the New York Stock Exchange during the 1990s.

Lucent spokesman Bill Price says that, of the company's 50,000 employees who have departed since last year, “at least half left voluntarily, thanks to spinoffs, sales of businesses, natural attrition, and enhanced retirement packages.” He continues: “They have a lot of errors in their report; it makes you wonder how seriously you should be taking it.” As for criticism of fired CEO Richard McGinn, who the report claimed got a $35 million golden parachute (the media placed the figure much lower), Price simply says the information is wrong.

A Raytheon spokesman was equally critical of the report, which accused the defense contractor of creating a “substantial conflict of interest” by giving its auditor, PricewaterhouseCoopers, non-audit consulting work. “The independence of our auditor is not at issue,” spokesman David Polk says flatly.

Polk and Lucent's Price both say they consider any comparison to Enron appalling. However, at least two companies, EMC and Raytheon, are making changes that suggest they'd rather not follow Enron's lead. Raytheon established an audit committee this spring and Raytheon's auditor, PriceWaterhouseCoopers, is separating from its consulting branch. EMC has committed to having a majority of its board members independent of other ties to the company. Fredrickson says that since Michael Ruettgers took over as EMC's chairman in January 2001, the only position on the board that's been filled was given to an outsider who had no previous ties to EMC.

“We're not saying any of these companies are the next Enron,” says United for a Fair Economy's Scott Klinger, who cowrote the report. “The intention was to focus their attention on these practices.”