18 May 2007

Return of the Trojan Horse

God bless us every one. David Stockman is in the news again. Best remembered as Ronald Reagan's budget director, as the man who said that the Laffer Curve was a "Trojan horse," Stockman is now in trouble private sector budgetary shenanigans.

Collins and Aikman, an auto parts company, has been in chapter 11 since May 2005. Its efforts to re-organize having failed, C/O is now in the process of liquidating. Stockman was the chairman of its board of directors from August 2002 until the time of the bankruptcy filing. He was the company's chief executive, too, for most of that time.

This week, C/O filed a lawsuit (with an 80-page complaint) in a federal court in Delaware in which Stockman is the first-named of several defendants said to have failed in their fiduciary duties.

Stockman was recently indicted on accounting-fraud charges, and the civil complaint echoes those charges, although coached in the language of breach of fiduciary duties. On his own behalf, he has contended that the prosecution is trying to criminalize optimism. There's a grim irony here. It appears that Stockman was once again using an unrealistically optimistic Trojan horse projection to lead a large entity (not as large as the US government this time, thank heavens) deep into the realm of red ink.

Optimism, schmoptimism. Here's a graf from the complaint that gives the gist of the whole.

"By early 2002 [various negative factors] were dramatically depressing the Company's financial results and the Company was increasingly finding itself locked into long-term contracts with little upside earnings potential. Unfortunately for [C/O] ... instead of dealing with the issues facing the Company in an open and legal manner, Defendants concealed the true financial results of operations and condition of the Company, embarking on a fraudulent accounting scheme which hastened the demise of the Company and left it unable to right itself."

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.