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American Morning

Interview with Lionel Barber

Aired August 23, 2002 - 08:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

PAULA ZAHN, CNN ANCHOR: There are new troubles for media giant AOL Time Warner this morning. That's the parent company of CNN. According to the "Financial Times," the Securities and Exchange Commission wants to know why company executives were making upbeat revenue forecasts while many of those same executives were selling millions of dollars in company stock. That's in addition to existing investigations by both the SEC and the Justice Department into some company accounting practices.
Joining us now to talk a little bit more about this and what this probe means to the company, its investors, and broader issues of corporate malfeasance is "Financial Times" managing editor Lionel Barber -- thank you for dropping by.

LIONEL BARBER, MANAGING EDITOR, "FINANCIAL TIMES": Good morning, Paula.

ZAHN: So is this a big deal?

BARBER: I think it's a very big deal. To understand what's going on, we have to go back to those heady days in January 2000 when AOL, the upstart Internet company took over the venerable Time Warner, and created what we thought, what many thought was going to be the media giant to take over the world. At the time, very optimistic forecasts were made about revenue and earnings, double digit for revenue, 30 percent earnings growth.

Flash forward 18 months and the AOL board, the top executives, are still making those very optimistic earnings and then, at the same time, selling stock to the tune of $500 million.

ZAHN: No one has said, have they, that anything illegal was done here. Is it perhaps that they're guilty of nothing more than irrational exuberance?

BARBER: Irrational exuberance. There we go. Well, I think that that will be the key defense, that they really believed in these results, in the fact that they could meet these earnings targets, and, of course, there was tremendous pressure, because any suggestion otherwise and there would have been a collapse in the share price. However -- however, what the SEC is concerned about is, is there anything within the company, e-mails or whatever, which might cast doubt on the fact that they had the confidence in these targets? And remember, those executives made a lot of money. Steve Case pocketed 100 million. He is still chairman. Mr. Pittman, who has now left the company of AOL, he made 66 million. Dick Parsons, who has got a tremendously difficult job right now in making this merger work, he took home $21 million.

ZAHN: We have a statement from an AOL Time Warner spokesman to your piece, and he said we are not commenting specifically on the "Financial Times" report, but we are cooperating fully with the SEC and the DOJ in their inquiries. Talk to us a little bit, in a broader brush stroke about corporate malfeasance, and specifically what the "Financial Times" has been focussing in on over the last several months.

BARBER: Yes, Paula. I mean, two months ago, we started looking very, very closely at companies that had got into financial trouble or gone bankrupt. The 25 biggest company bankruptcies in America over the last three years, and we discovered something quite extraordinary. The executives of those companies that went bust, they made almost $4 billion in profits from share sales during that period.

(CROSSTALK)

ZAHN: Meanwhile, the shareholders are left holding nothing?

(CROSSTALK)

BARBER: The shareholders were -- really. They were robbed, and these executives were essentially rewarded for failure, and I think there's some very important questions about why the system here in America allows that kind of thing to happen.

ZAHN: Final question for you, how successful do you think some of these class action suits will be by the shareholders? Now, you got one going on against Martha Stewart and her company, and as I understand, their track record in the past has been pretty darn good. They settle, and they get some money for those shareholders.

BARBER: Absolutely, Paula. I think that there are two lessons here. One is that the small investor who made some money during the bull market, may get some back through what we call disgorgement (ph) and that some of the executives may have to hand over some money, and I think the darker lesson for people like Dick Parsons of AOL Time Warner, who have a tremendously difficult job right now, they're just going to be dealing with lawyers for the next 12 months, if not longer.

ZAHN: Lionel Barber, thank you for your insights.

BARBER: It's a pleasure, Paula.

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