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Response

RESPONSE
by
Richard T. Baker Chairman Emeritus Ernst and Whinney

Many thanks, for those very nice comments about me. I am reminded of the time that Ohio State invited our 1939 Big Ten champion basketball team back to celebrate our fiftieth year reunion. It was fun to be back with my former teammates to reminisce about old times and before the weekend was over we weren’t even missing any of our warm-up shots. Nothing was said about our losing the final game to Oregon State in the very first NCAA tournament. Thankfully, our memories over time have a tendency to treat us kindly and I must tell you they have pulled out all the stops today on my behalf.

For a guy who is going to be 76 years old in less than a month, and is a loyal graduate of Ohio State University, this recognition is truly an unexpected honor. I am also indebted to all of you for coming here before breakfast, to help me celebrate this recognition.

When I retired from Ernst & Ernst sixteen years ago, I re-ceived a binder of over sixty letters from college professors who were very close personal friends of mine. This binder had been prepared by Don Edwards. I miss those associations that had been so beneficial to me during the years that I was with E&E.

As mentioned, after my retirement from E&E, I began a second career by going on the Boards of Directors of some outstanding companies, including General Electric, Hershey Foods, Anheuser-Busch, International Paper, Textron, and Louisiana Land & Exploration. It has been a wonderful way of extending my usefulness to the business community and has given me an excellent opportunity to see the other side of the fence as far as business is concerned. Last, but not least, it has paid very well.

I think that is enough about my career and now I would like to devote the remainder of my time discussing your careers and the possible ways that you might enhance them somewhat in the same way that I did mine. Let me first give you my view as to the way things are now and why it offers you new opportunities to continue doing what you now are doing and supple-

meriting it by going on some boards of directors of public com-panies.

This may not appeal to all of you, but it certainly should appeal to some of you. I am not sure how many of you are now serving on boards of public companies, but I am confident that you all have the basic training and talent to make outstanding board members.

Here are some of the reasons that this opportunity is more available to you than ever before. There are many changes in the way our business community is being challenged including the basic concept of the governance of our publicly-owned corporations. Here is just a brief outline of some the significant changes:

1. The Board of Directors is no longer comprised primarily of CEOs of other public companies with basic overlaps being the norm, rather than the exception.

2. In a large majority of cases, the CEO is restricted from being on more than one or two other public companies.

3. No longer are the lawyers, bankers and suppliers who work with the corporation automatically considered prime can didates for the board.

4. Institutional investors are challenging the relationships of the CEO and the board members.

5. A few years ago, the certified public accountants added this sentence to their reports on financial statements: Quote “The management of the company is responsible for their financial statements.”

6. Corporations are being forced to make a decided effort to get a broad-gauged board which can deal with the many new complicated problems, such as the vast government regulations,
the increasing number of lawsuits, international operations, and the ongoing accounting changes prescribed by the Financial Accounting Standards Board.

If I could digress for just a minute — Dennis Beresford, Chairman of the FASB, is with us this morning. Denny, for many years, was a partner with E&E and is now in his second term and is doing an outstanding job as Chairman. It’s not easy being a member of that board. Imagine the difficulty of explaining the current issue — accounting for stock-based compensation — the exposure draft consists of exactly 100 pages of explanation of why and how this issue is to be handled.

(Dennis Beresford, FASB Chairman), many of us remember that General Eisenhower took the better part of one page to outline the successful battle plan for World War II!
I have outlined six major reasons why the public com-panies are widening the field for directors and why professors of accounting should qualify for consideration. With the new responsibilities placed on management for the financial state-ments and the increasing complication of the accounting rules, management needs someone on the board that understands ac-counting in detail and can help protect the company by serving on the audit committee.

The best sources of this talent are those that have spent their careers in accounting and foremost would be retired pub-lic accountants and teachers of accounting. You people qualify for this and the big question is how do you go about getting invited. This is complicated, but it can be done.

First, please understand, you must initiate a program of getting acquainted with the management of the company. Sec-ond, you must demonstrate that you can be helpful!
A classic example could be the contemplated change in the handling of accounting for stock-based compensation. Many companies are not pleased with the proposed change and would be delighted to have your input on it — especially if you really agree with them.

Each of you should work out a program that you are com-fortable with.

I am going to close by telling you of an incident that occurred shortly after I became the managing partner of E&E. A long time friend who had become president of a large com-pany called me and said that they were unhappy with their au-ditors and that they were going to make a change. I obviously was pleased and asked what do you want me to do? He replied “nothing, you make your friends before you need them.

I hope you will take this suggestion seriously. I will be watching for your names on the proxy statements.
Thank you very much.