Reverse Spin: Grim outlook for corporate America

Well, this might explain all the long faces coming out of corporate boardrooms this year.

Executives at top companies are expecting this year’s economic picture to be even grimmer than last year’s, with many more layoffs expected over the next six months, according to a survey released by the Washington-based Business Roundtable.

The survey also indicated executives expect gross domestic product to advance only 2.2% in 2003, fractionally less than the tepid 2.4% gain registered in 2002. And only 9% expect to hire new workers, while 45% expect to let workers go.

“What we’re seeing is a continuing trend of a weakening economy,” said Business Roundtable chairman John Dillon. Mr. Dillon is chairman and chief executive at International Paper Co. in Stamford, Conn. “This economy continues to operate well below its potential,” he remarked.

Mitigating damages

Let the Great Dismantling begin.

Citigroup Inc., the No. 1 U.S. financial services firm, is conducting an internal review of the size and shape of its global equities business, which may result in layoffs of traders and sales staff.

The review, which encompasses how to offset shrinking trading commissions, and weak trading and underwriting volumes, is being led by Robert Rubin, the former Treasury secretary who heads the New York bank’s executive committee.

“The longer companies operate in this environment without a recovery, the more they will have to rationalize making changes on the cost side,” said Brock Van Der Vliet, a financial services analyst at New York’s Lehman Brothers Inc. “Citigroup is no different.”

The Goldman Sachs Group Inc., also in New York, recently fired 100 traders and salespeople, or 3% of its equities staff.

Pebble in your shoe

The battle lines are being drawn between Denver’s Janus Capital Corp. and its largest shareholder, a pesky little hedge fund called Highfields Capital Management LP.

In a blistering letter to Janus chairman Landon Rowland, Boston-based Highfields accused Janus of being stingy with information on executive compensation in a recent proxy statement filed with the Securities and Exchange Commission.

“Your SEC filings are deficient under both specific disclosure requirements and the overarching prohibition on proxy material omitting material information relevant to a shareholder’s voting decision,” the letter said.

“Beyond specific defects, management’s filings constitute a breach of faith with its shareholders, one that is particularly egregious for a company whose business it is to invest as a fiduciary in the public markets,” wrote Highfields principal Jonathon Jacobson.

Mr. Jacobson added that Highfields would vote against Janus’ new compensation plan and its amended long-term incentive plan.

Taking the Fifth

Here’s a man of few words but lots of living expenses.

Faced with more than 50 questions from a federal prosecutor about his role in an alleged $2.5 billion fraudulent scheme at Birmingham, Ala.-based HealthSouth Corp., ex-chief executive Richard Scrushy pleaded the Fifth Amendment on all but one question.

The hearing concerned whether Mr. Scrushy’s personal assets should remain frozen while the government continues its probe of HealthSouth. Mr. Scrushy has requested about $10 million in living expenses, plus $60 million for legal fees and tax payments.

The one question Mr. Scrushy did answer? When the government’s lawyer asked him whether he would have fired any employee who fraudulently altered HealthSouth accounts, he replied softly, “Yes.”

Closing Quote

“What the hedge fund managers should do when they hold cash is return it to the investors–what a concept.”

–Amy Hirsch, chief executive of Paradigm Consulting Services LLC

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