An article in this week’s Business Week details how President Bush recently authorized John D. Negroponte to “excuse publicly traded companies from certain accounting and securities-disclosure obligations.” From the article:
Jeffrey H. Smith, a former general counsel of the CIA, said a number of companies have been granted the waiver: “Pick any of the major defense contractors — Lockheed (LMT ), Boeing (BA ), Raytheon (RTN ). They do a lot of classified work for the government, and I know it’s not all reported.”
A spokesman for Lockheed Martin Corp. wouldn’t confirm or deny the company has ever gotten a waiver but said Lockheed is “fully compliant” with all financial-disclosure requirements. Boeing Co. and Raytheon Co. declined comment.
Smith, now a partner at Washington law firm Arnold & Porter, added: “Some of [the contractors’ work] is really black; that means really secret. Boeing might be building jet fighters for the federal government, but the building won’t say Boeing on it. It will say something else. That type of thing you’re not going to put in your SEC filings.” Stressing that he isn’t a securities lawyer, Smith said he believes defense contractors’ revenue and costs still have “to be accounted for in some fashion.”
In the document, Bush addressed Negroponte, saying: “I hereby assign to you the function of the President under section 13(b)(3)(A) of the Securities Exchange Act of 1934, as amended.” A trip to the statute books shows that the act was amended in 1977 by the Foreign Corrupt Practices Act. The amended version states that “with respect to matters concerning the national security of the United States,” the President may exempt companies from certain critical legal obligations. These include keeping accurate “books, records, and accounts” and maintaining “a system of internal accounting controls sufficient” to ensure the propriety of transactions and the preparation of financial statements in compliance with “generally accepted accounting principles.”
I would agree with Jeffrey H. Smith that defense contractors still need to provide information that indicates that they are abiding by the laws of corporate finance. Otherwise, why not just add a few more zeros on this column, and cut a few off this one? National security is important, but it does not trump corporate accountability. If that becomes the case, then we are headed for a dark time where corporations and government can easily collude and deceive.