Co-Mingling
Cuckoo for co-co

1. Freston and Moonves Get Co-Opted

Viacom ( VIAB) promoted two top executives to the posts of co-president and co-chief operating officer on Tuesday.

The appointments, says Viacom, are part of "the orderly transition to the next generation of senior management for Viacom."

There you have it, folks. Proof that Viacom's brain trust has collectively gone nuts.

See, there is no better way to create a disorderly transition than to tell two executives to share the job of co-chief-something-or-other. There's no better way to speed up an executive's departure than to go the co-route.

And though it's traditional for the co-whatevers to profess their abiding friendship and respect for each other on the way in -- as did Viacom's Tom Freston and Les Moonves on Tuesday -- these vows of collegiality on the way in serve only to heighten the snickering on the way out.

Yeah, remember back in the days when Time Warner ( TWX) was known as AOL Time Warner? Co-chief operating officers Dick Parsons and Bob Pittman acted all friendly for the public after Parsons was designated the next chief executive and Pittman the next sole COO. Less than six months later, Pittman was out the door.

Pittman's departure recalled decade-old disharmony at Time Warner, back when it had been freshly assembled from Time Inc. and Warner Communications. First came co-chairmen and co-CEOs Steve Ross and Richard Munro, then co-CEOs Ross and Nick Nicholas, and then co-CEOs Steve Ross and Jerry Levin. The transitions, as we recall, weren't smooth and orderly.

Elsewhere, in April 1998, John Reed and Sandy Weill said they'd happily work as co-chairmen and co-CEOs of Citigroup ( C).

"I'm used to sharing the power and responsibility," Weill said when the deal to create Citigroup was announced, according to CNNfn. "I have been married to my wife for 43 years," Weill said. "I'm used to being told what to do and we have managed to work that out over a long period of time."

A year and a half after Citigroup formed, Reed was out the door.

"A long period of time" means one thing at home and another thing at the office, evidently.

"Tom and Les have been good friends for years," Sumner Redstone assured Wall Street analysts on Tuesday.

Well, when things fall apart a year from now, at least they'll have those happy memories to look back on.

2. Say the Secret Word and You Win $2.7 Billion

Kudos to HealthSouth for spotlighting an important but too-often-overlooked ingredient of any successful accounting fraud: the code word.

Pixie Dust Bin
Toothless accounting

See, you can't have your employees going around saying, "The quarter just closed, but our results are coming up short. Let's make a few improper entries in our accounting system so we can fabricate a few hundred million in revenue, shall we?"

Saying all that takes too long. It wastes precious company time. Plus, it unneccesarily forces employees to confront what it is that they're doing: lying. Breaking the law. Unpleasant stuff like that.

So, when HealthSouth's board released on Tuesday its report on accounting fraud at the health care provider, we were happy to learn that employees had a variety of terms they used to describe the undocumented numbers that crept into financial statements each quarter. Those numbers miraculously added $2.7 billion to the company's pretax and pre-minority interest income over seven years.

"Pixie dust," some knowledgeable employees called the new entries. "Fairy dust," said others. "Gifts," too. Also "candy."

In the universe of accounting fraud code names, these are kind of cool, we think. Back at WorldCom (now MCI), they called the quarterly book-cooking the bland "Close the Gap." At the trial of former executives of cable operator Adelphia, onetime vice president of finance Jim Brown testified that he called his own manipulations "accounting magic."

Magic, pixie dust, fairy dust, whatever. It all proves that it's easier to believe in Tinker Belle than in what some companies will tell you.

This Mud's for You
Royal pain in the glass

3. Anheuser-Busch's SABMiller Story

We're often amused by lawsuits in which Company A complains about Company B's advertising. But even we have our limits.

Today's example: the recent court battle between Anheuser-Busch ( BUD) and SABMiller over advertising and promotional materials. In a lawsuit filed last month, Wisconsin-based Miller Brewing said the Budweiser brewer was being "false and misleading" by dubbing Miller Lite the "Queen of Carbs," and by stating that Miller was "Owned by South African Breweries" or "South African owned." South African Brewers purchased Miller in 2002; Miller is now a subsidiary of London-based SABMiller.

The funny part: In a preliminary injunction May 28, a judge ruled that Anheuser-Busch no longer could say Miller or its beers are "owned by South African Breweries." But, says Anheuser-Busch, it's still free to say "Miller was purchased by South African Breweries" and "Miller is South African owned." That's a classic, finely tuned legal distinction that is subtle enough to be completely meaningless in practice.

The less funny part: The xenophobia underlying the whole debate. This is not a dry truth-in-advertising debate here -- it's two companies fighting over the right to say, "I'm more American than you." Miller has already played the patriotism card itself, calling Miller the "President of Beers" -- in contrast to Budweiser's portrayal of itself as King -- and calling Anheuser-Busch un-American for not debating them.

Meanwhile, just this week, these companies were fighting for control of Harbin, China's fourth-largest brewer. Anheuser-Busch beat out SABMiller, which will be selling the 29% stake it had already held in the company.

The ironies are delicious -- as tasty as a cool, frosty one on a hot summer day in Beijing. This wrapping-yourself-in-the-flag tactic can cut both ways, if you're a brewer with worldwide holdings. When Chinese patriots stop drinking Harbin's beer because it's made by a bunch of foreigners -- and when some Russian brewery takes aim at SABMiller's Zolotay Bochka for not really being Russian -- don't come whining to us.

4. Bonus Maybes

Those 2003 bonuses at Nortel Networks ( NT) are getting more and more tenuous.

As ace telecom reporter Scott Moritz pointed out Wednesday , the telecom gearmaker disclosed this week that -- as a result of an ongoing accounting investigation -- all profits from continuing operations in the first half of 2003 would be moved back to prior years.

Those surprising profits -- which now appear to be illusory -- led to $50 million in "return to profit bonuses" for top executives, reports Moritz, because the bonuses were to be awarded on the basis of any "pro forma earnings from continuing operations."

Though the profits are now deemed imaginary, the bonuses based on them remain very real. It's unclear whether Nortel will try to reclaim them; new CEO Bill Owens said the company will "do the right thing," but he wasn't more specific.

We wonder what "doing the right thing is" in this case. Will it be getting all that money back and putting it in the company treasury? Or was Owens actually referring to Spike Lee's Do The Right Thing -- that is, suggesting we show up at the relevant executives' homes, throw a trash can through the window, and incite a riot? As appealing as that seems, we'll settle for the money.

5. Paxil Vobiscum

We're all for listening to Prozac. Whether we should have listened to GlaxoSmithKline ( GSK) is another story.

On Wednesday, New York State Attorney General Eliot Spitzer filed suit against the pharmaceutical company, accusing it of fraudulently withholding information about the safety and efficacy of the antidepressant paroxetine, sold as Paxil, in treating children and adolescents.

In a memo to Paxil sales representatives, a Glaxo exec wrote "Paxil demonstrates REMARKABLE Efficacy and Safety in the treatment of adolescent depression," reports Spitzer, who doesn't supply the date of that memo.

Yet in a 2003 statement to regulators covering Paxil's appropriateness for treating what's known as "major depressive disorder," alleges Spitzer, Glaxo said, "in view of a safety signal concerning a possible increase in suicidal behaviour, particularly in adolescents with MDD, the use of paroxetine in children and adolescents with MDD cannot be recommended."

Spitzer also makes hay of an internal Glaxo document indicating that in light of the mixed efficacy outcomes of one Glaxo study of adolescents on Paxil, and the negative results of another study, Glaxo's "target" was "to effectively manage the dissemination of these data in order to minimise any potential negative commercial impact."

Which meant, according to Spitzer's complaint, burying the research that didn't portray Paxil in the best light.

Glaxo, in a statement, says it has acted responsibly, making all pediatric studies available to the Food and Drug Administration and other regulators. The memo, says Glaxo, "is inconsistent with the facts and does not reflect the company position."

Maybe so. But for now, it looks as if to Glaxo, all the children's antidepressants were above average.
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