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Laying the blame at Cendant
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July 16, 1998: 11:31 a.m. ET
Accounting problems calls Forbes' accession to CEO job into question
From CNNfn Correspondent Terry Keenan
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NEW YORK (CNNfn) - Cendant Corp. shares fell again Thursday morning in the wake of startling revelations from the company that its accounting problems are much bigger than originally thought.
There now are signs the accounting crisis is turning into a management crisis as well.
As the plot thickens in Wall Street's biggest accounting scandal in years, Cendant shareholders are asking, "Who's to blame?"
Increasingly, fingers are pointing at the executive suite: When Cendant was created last year through a merger of HFS and CUC, it came with an unusual deal whereby the company's two top executives would swap jobs at the turn of the century. A compromise would allow Henry Silverman of HFS and Walter Forbes of CUC to share the executive limelight.
But with Forbes' company, CUC, clearly at the center of fraud allegations, many investors now wonder whether Forbes should take over as CEO in a year and a half as planned.
"I would like to see them say, 'Hey, Walter Forbes is clean. He is a good guy. He's got a decent idea here, and we need to keep him around.' Or, 'Hey, Walter Forbes is no longer part of this company,'" says David Brady of Stein Roe Growth Stock Fund.
In recent days, Forbes has made it clear he plans to be running Cendant in the next millennium. He also has hired a public relations firm to boost his image. Ultimately, the decision lies with the board of directors: It's split 50-50 between Forbes and Silverman loyalists.
"I would expect that both sides now are struggling to control the board. It may be that there are directors who were appointed by each side, but outside independent directors are not going to be loyal to someone if there is strong persuasive evidence that that person was involved in fraud," says John Coffee, professor of corporate and securities law at Columbia University.
Almost golden
But CNNfn has learned any move to deny Forbes the top job would be extremely costly to the company under the terms of an employment contract Forbes signed last fall. Any dismissal without cause would result in a payout of more than $47 million to Forbes.
The only exception would be a conviction on a felony or "perpetration of common law fraud." A finding of negligence or mismanagement would not void the golden parachute.
Forbes did not respond to CNNfn's requests for an interview, but he has said he will not respond to specific accounting issues until the auditors present a full report of CUC's books to the board. That report is due out early next month.
Cendant (CD) shares were down 1/4 at 15-7/16 early Thursday, more than $26 off their 52-week high. 
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Cendant
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