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Please lie to me. After all, I am only a shareholder. And could you do it regularly, quarter after quarter, year after year? I sleep better at night. And my cat seems to enjoy it also.

In the current edition of Fortune, GE is selected as America's most admired company. And in the same issue, GE's management of earnings is discussed. Doesn't anyone see the irony?

From the article: In April 1994 the escapades of rogue Kidder Peabody trader Joseph Jett left GE with a $350 million hole in its earnings. "The response of our business leaders to the crisis was typical of the GE culture," Welch recalls in the book. "Even though the books had closed on the quarter, many immediately offered to pitch in to cover the Kidder gap. Some said they could find an extra $10 million, $20 million, and even $30 million from their businesses to offset the surprise."

It's long-standing practice at GE, whenever the company makes a big gain from the sale of a subsidiary or another asset, to come up with some sort of big discretionary investment or a restructuring charge in the same quarter--which keeps net earnings rising smoothly instead of jumping around from quarter to quarter. In the fourth quarter of 2001, for example, GE made a $642 million gain on a satellite partnership and conveniently took a $656 million charge for exiting unprofitable businesses and marking down unsuccessful investments (including an $84 million loss on Enron bonds).

Immelt and CFO Keith Sherin don't deny this at all. They just find it incomprehensible that anyone would want them to report 30% earnings growth one quarter and 3% the next if they can avoid it. "It just doesn't make any sense to us in managing a business," Sherin says.

So lie to us then.

I am reminded of the perfect of police in Casablanca. Just before pocketing his winnings for the night, he announced that he was shocked to see gambling going on in Rick's, and closed the place down. We are collectively shocked at the fraud in the statements of Enron, all the while celebrating the earnings management that is standard practice at GE, our most admired company. And it is done for our sake. It is incomprehensible that we would want the facts, when warm and fuzzy lies keep us fat and happy.

Is "lie" to harsh a word? I don't believe so. What else would you call the reporting of financial results that companies know to be false, at least false in the sense that they are not management's best estimate of performance for the period under question? So we accept a practice from the management of American corporations that we would find deplorable in school children. Have we lost our sense of irony, or our sense of shame?

There is enormous pressure on companies to manage their earnings. But where is the pressure on shareholders to demand that they do so? There may also be enormous pressure on students to cheat in school. But does that mean that their parents should encourage such activity?

So please lie to me; don't include the cost of stock options on income statements. Please lie to me; take huge one time charges instead of reporting the cost of mistakes in the financial statements as they occur. Please lie to me; give me misleading pro forma earnings - everything but the bad stuff - instead of real results.

Just today, Conseco reported its fourth quarter results. Look at this howler. In their pro forma results, they classified $47.8 million of investment losses as a non-operating item. The following is their explanation: Net Realized Losses on Investments. In addition to realized gains and losses from the sale of investment assets, and other normal activities in this account, it includes impairments on fixed maturities connected to those widely reported business failures -- Enron, Kmart, Global Crossing, and investments in Argentina. Where is the sense of irony? They are claiming that investment losses are not operating in nature because they are the results of bankruptcies. And from Enron no less! Enron failed, in part, because they were trying to fool investors about the true nature of their earnings, pushing losses off the income statement. And Conseco is attempting to fool investors regarding the true nature of their investment income by removing investments losses from operating earnings just because they were from bankruptcies. If I could write stuff like this, I would go professional.

"Sure," people will protest, "there is a difference between managing earnings and fraud." But is it? To me, a little bit of earnings management is like being a little bit pregnant. The earnings are still wrong, and the lady is still pregnant. Maybe there is a difference, and it all depends on what the meaning of the word "is," is. But again, maybe not.

Is this what shareholders want? GE believes that it is. Conseco believe that it is. If so, we deserve the Enrons we get. We can't ask companies to lie just a little - good lies - but no so much that it creates problems - bad lies. When does a good lie go over the line to being a bad lie? Do you want management to make these kind of decisions, when they could just prepare the best financial statements possible and let the chips fall where they may. Can you ask the ladies to remain "just a little bit pregnant?"

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