The markets got a short-lived peace pop this morning after Iraq said it would allow United Nations weapons inspectors to return, a move U.S. officials viewed with skepticism. By afternoon, however, the major indices had pulled back, with the FOOL 50 losing about 1.7%.

In today's Motley Fool Take:

Tyco Funds Toga Party

There's a ton of Tyco(NYSE: TYC) news out today, most of it dealing with the company's disclosure of a five-year run of "improper and illegal activity" by former top executives. Topping even that, however, is news of a meeting between ex-CEO Dennis Kozlowski and the top dog at Merrill Lynch(NYSE: MER).

First, the alleged abuses. Tyco released an SEC filing this morning accusing Kozlowski, former CFO Mark Swartz, and former Chief Corporate Counsel Mark Belnick of granting themselves unauthorized benefits (such as interest-free loans), forgiving $96 million worth of loans to certain employees (including themselves) through the use of bonuses, and much, much more.

The company even disclosed some of the items Kozlowski had Tyco buy for his Manhattan apartment, including a $17,100 "traveling toilette box," and a $15,000 "dog umbrella stand." (What in the world are those things?) The SEC filing says all of this activity was concealed from the board of directors and other relevant people.

The Wall Street Journal even details a $2.1 million birthday bash for Kozlowski's wife on the Italian island of Sardinia -- Tyco apparently picked up half the tab. It was a Roman-style affair, complete with togas and an ice sculpture of Michelangelo's "David" that dispensed vodka through his privates.

The other part of this saga further reinforces the widespread skepticism toward Wall Street analysts. The Journal, citing "people close to the matter," says Merrill Lynch actually replaced an analyst after Kozlowski complained in a face-to-face meeting with Merrill CEO David Komansky about negative coverage. The new analyst promptly raised Tyco's rating from "accumulate" to "buy."

Luckily for Tyco shareholders, these latest developments will affect only the company's reputation, not its bottom line... though one wonders what other surprises might be in store.

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Commission Attacks CEO Pay

The Conference Board's star-studded Commission on Public Trust and Private Enterprise attacked executive compensation today, releasing its first recommendations for improved corporate governance.

The Commission, made up of luminaries including Arthur Levitt, Jr., Andy Grove, and Warren Rudman, said that investor loss of confidence is due to a huge breakdown in the underpinning of corporate capitalism in America. Investors hand over money to professional non-owner managers, expecting boards of directors to oversee management to police the conflict of interest between owners and managers. The Commission advocates private sector reform rather than more regulation and legislation.

The recommendations fall under four umbrellas: strengthening compensation committees; linking performance-based compensation to specific long-term strategic goals; using equity-based incentives appropriately (such as requiring senior management to accumulate "meaningful" amounts of company stock and specifying "substantial" minimum holding periods); and basing compensation on what makes sense for the business, regardless of accounting effects. Like motherhood and apple pie, who would disagree? The devil will be in the details.

The Commission strongly attacked the way stock options have been used, noting, in particular, the perverse tax code incentive that limits tax deductibility of cash compensation over $1 million but treats fixed price stock options more favorably. While the 12 commissioners unanimously adopted the Board's 22 recommendations on compensation, two dissented from the recommendation to expense stock options. Intel(Nasdaq: INTC) Chairman Andy Grove opposed expensing stock options, while former Chief Paul Volcker advocated the stronger recommendation that stock options be strongly discouraged for public companies.

Not a commission member, but a dean of American corporate best practices, Berkshire Hathaway(NYSE: BRK.A) CEO Warren Buffett spoke at the end of the presentation. He noted wryly that he has been allowed to serve on the compensation committee of only one of the companies on whose board he serves. He said we need Dobermans in these positions, not Cocker Spaniels, but at a minimum, at least Cocker Spaniels that bark.

We think Buffett's right that corporate boards have gone to the wrong dogs. The mystery of the last few years, when many corporate boards and compensation committees exercised little or no oversight while company officers transferred wealth from shareholders to themselves (gazillions in the form of "loans" and other perks), could be summed up by this famous exchange from Arthur Conan Doyle's tale, "The Adventure of Silver Blaze":

Inspector Gregory: Is there any other point to which you would wish to draw my attention?
Sherlock Holmes: To the curious incident of the dog in the night-time.
Inspector Gregory: The dog did nothing in the night-time.
Sherlock Holmes: That was the curious incident.


The Commission's press release is available on its website. More recommendations on corporate governance, including auditing and accounting, are forthcoming.

Quote of Note

"Hope for the best. Expect the worst. Life is a play. We're unrehearsed." -- Mel Brooks

Rate Changes at Ameritrade

Change is a lot like holiday fruitcake: It's as unwelcome as it is unavoidable. Now that Ameritrade(Nasdaq: AMTD) completed its purchase of fellow deep discount broker Datek, the new trading powerhouse with nearly three million accounts is tweaking its commission schedule.

The new minimum stock trade commission will be $10.99 at both firms. Datek's lowest rate was a dollar cheaper, while Ameritrade has been offering online market orders for just $8 a trade. However, the company is eliminating certain surcharges. For instance, Ameritrade's Internet customers used to pay $5 more for limit orders. That's no longer the case. So, for some trading styles, the new rates will actually be lower. The company is also beefing up its services and introducing a new joint tier of perks for its active traders.

For the discount brokerage industry, inching rates higher has been one of the few responses to a lackluster market in which trading volume isn't quite what it used to be. While the moves might fly against the laws of supply and demand, this is in response to a much higher calling: survival. Sector consolidation has narrowed down the playing field, and the entire deep discounting industry is trying to troll the waters to see how deep it has to go to earn the distinction of value.

The fact that Ameritrade signed up 29,000 new accounts last month, while Datek welcomed another 15,000, is proof that not everyone is scared of getting back into the water.

(In the element of full disclosure, Ameritrade is one of the corporate sponsors of our Discount Broker Center.)

Discussion Board of the Day: Discount Broker Center

Have you checked out our Discount Broker Center lately? New deals. New comparison tables. However, few things top sharing broker experiences with your fellow Fools. Who is doing it right? Who is doing it all wrong? All this and more -- in the Discount Brokers discussion board. Only on

Quick Takes

Is Best Buy(NYSE: BBY) becoming an even better sell? The home-electronics superstore chain posted second-quarter earnings of $0.19 a share, from $0.26 a share the year before. You can lay the blame on deteriorating margins as sales climbed 20% higher, topping the $5 billion mark. While that was mostly due to the company's expansion -- it has opened 88 new stores over the past year -- same-store sales did clock in 2% higher. Best Buy had already warned Wall Street about the margin crunch, and the results were actually slightly ahead of the watered-down guidance.

Stained stainless? Universal Stainless & Alloy(Nasdaq: USAP) is getting dinged after tarnishing its third-quarter outlook. Due to pricing pressures and sluggish demand, the company is now expecting to earn just $0.03 a share on softer revenue. The new profit target is well off the $0.12 a share analysts were expecting.

Grimace. That's what McDonald's(NYSE: MCD) shareholders are doing today after the company announced it will miss its mark this quarter. With an ambitious turnaround strategy in the works that entails a new $1 value menu and costly remodeling of older units, the world's largest restaurant chain is indeed in a pickle. Now if only investors could get the company to hold the pickles.

It's a Monster day for video retailers. Today, Monsters, Inc. hits the home video and DVD market, and it couldn't come at a better time for Disney(NYSE: DIS), who splits profits with Pixar(Nasdaq: PIXR). With institutional investors and board members starting to get as antsy as small investors have been in recent years, Mickey Mouse needs some kind of good news before the company says "M-I-C, see you real soon!" to CEO Michael Eisner.

Pfizer (NYSE: PFE) is doing just pfine. The pharmaceutical giant took a healthy peek forward, expecting double-digit top- and bottom-line annual gains through 2004. As the company sets to close its purchase of Pharmacia by the end of the year, Pfizer sees compounded annual revenue growth of 11% and diluted earnings-per-share growth of 16%. Pfantastic.

And Finally...

Today on Ignore contrary investing opinions at your peril.... Matt Richey breaks down his approach to valuing a small cap.... Flee the 12b-1 fee... The down payment dilemma, in Fool's School.

Bob Bobala, Robert Brokamp, Tom Jacobs, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Jackie Ross, Reggie Santiago, Dayana Yochim