The Post-Enron World

A post-Enron era is beginning to take shape, and those chief executive officers and politicians who miss this change in the culture may find themselves suffering deeply. Enron Corp. (ENE ) clearly crossed the line--but it was a line that much of the country has been walking for a decade. The hyperbolic forecasts that various chief executives fed investors about their companies' prospects became sweeping deceptions by Enron officials. The accounting tricks that companies employed to boost earnings and stock prices became outright duplicity in Enron hands. And the campaign contributions spent by many companies to ensure favorable government treatment worked only too well in Enron's case.

The Enron scandal appears to be a watershed event. Polls show a deep undercurrent of public distrust in Big Business and its influence in Washington. Investors are already demanding a new veracity and integrity from chief executives and the balance sheets they present. The next impact, however, may be on the political world as voters question the money connection between Big Business and policymaking. President George W. Bush would do well to understand the change in the nation and follow his champion Theodore Roosevelt in cleaning up the mess in political finances. As he prepares his State of the Union message, the President should seize the moment to back campaign finance reform and reassure Americans that they can trust their elected leaders.

Americans want no less from their corporate leaders. The perfidy of Enron executives contrasts sharply with the post-September 11 honesty of former New York City Mayor Rudolph W. Giuliani and Defense Secretary Donald H. Rumsfeld, who became instant public heroes for their simple and truthful appraisals of terrible crises. Compare that to what Enron Chairman Kenneth L. Lay told BusinessWeek on Aug. 20: "There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues. The company is probably in the strongest and best shape that it has ever been." Or compare that to what former Enron Chief Executive Jeffrey K. Skilling said to BusinessWeek on Aug. 23: "People are afraid there's another shoe to drop, but it's just not the case." Skilling resigned on Aug. 14, the day before an Enron vice-president, Sherron S. Watkins, wrote her now-famous memo warning of an enormous "accounting hoax." Enron filed for bankruptcy on Dec. 2, destroying the jobs and the retirement savings of thousands of people. Throughout this time, Lay and Skilling were selling their company's stock while advising investors and their own employees to buy it.


In the immediate aftermath of the Enron fiasco, investors already have started demanding much greater clarity and honesty. Look at Tyco International Ltd. (TYC ), which was pressured to split itself into four companies and sell off assets because investors were uneasy about the reliability of the company's accounting methods. Even a passing grade by the Securities & Exchange Commission was not good enough to satisfy these skeptical investors. Meanwhile, the credit-rating agencies are demanding more off-balance-sheet information from companies. And stocks may well shift to a two-tier market in which investors reward companies that choose to return to conservative accounting practices and punish those that don't. The days of slippery pro forma accounting are numbered.

Washington should get behind the move toward more transparency and honesty in the country's corporate books. The ability of companies to game the entire regulatory process, as Enron did, must be prevented in the future as well. The Securities & Exchange Commission should be leading the reform effort, but it isn't. The attempt of the SEC's chairman, Harvey L. Pitt, to constrain rogue accounting firms that enable companies to distort their earnings is pitifully weak. He suggests yet another oversight committee to check procedures in a profession that already has a half-dozen such groups, none of which has stopped the many accounting scandals of recent years. Pitt's background in representing dozens of major companies, including ones in the accounting industry, in battling SEC regulation make his job all the more difficult.


Pitt is unquestionably a man of personal integrity, but he needs to come forth with a far bolder reform plan. The integrity of our financial markets is at stake.

Beyond that, there is no way to ensure honesty in Washington under the current system of campaign finance. It is impossible to establish arm's-length decisions in the public interest when raising campaign money is constantly on the agenda. The Clinton Administration encouraged chief executives to fly abroad with Commerce Dept. officials to pull in overseas contracts. Their goal was laudable: to compete with Japanese and European government efforts to help their corporate "national champions." At the same time, though, Clintonites were asking those same honchos flying overseas for campaign contributions. Enron's Lay flew to India with members of the Clinton Administration who helped him snag a $3 billion energy contract. He gave generously to Democrats and Republicans alike. Did he get what he paid for? We can't know for sure. Which is precisely the point.

In the post-Enron environment, Americans are revaluing their financial and political assets--and finding both severely depreciated. Investors are already betting their dollars on more trustworthy companies and CEOs. Voters may soon do the same with their political parties and elected officials. TR said in 1910 that "our government, national and state, must be freed from the sinister influence or control of special interests." After Enron, President Bush should take Teddy's words to heart.

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