Enron's Legacy: A New Wariness
The Enron scandal has shaken investors' confidence in the honesty of American corporations, but it hasn't scared them away from the market. That's the bottom line from a Feb. 11 Business Week/Ipsos-Reid Poll of 768 adults, including 619 investors.
Not that this debacle doesn't trouble investors. Nearly 9 in 10 question the honesty of Corporate America's accounting practices. Sixty percent of those polled believe that "some well-known corporations" use the same kind of questionable accounting practices that got Enron into trouble, and an 28% say Enron's downfall is proof of "an epidemic of deceptive corporate accounting practices," according to the Business Week/Ipsos-Reid Poll (for highlights of the poll's findings about investor sentiments, see BW, 2/25/02, "They're Fed Up").
What's more, only 10% of investors and 9% of all Americans say the situation is unique to Enron. Noninvestors are far more cynical about the honesty of the boardroom set. Among all adults, nearly half (48%) see an "epidemic" of corporate misconduct. The most skeptical: blue-collar workers, Democrats, young people, and those earning less than $50,000 a year.
After the disclosures about accounting practices and lax oversight by Enron lawyers and its board of directors, many investors say they'll investigate corporations more closely before risking their money. A majority of investors (55%) is either "much more cautious" about investing (41%) or "reluctant to invest" in the next six months (14%) as a result of Enron.
They don't seem to be stampeding away from the market, however. Twenty-nine percent of investors say they'll invest more in the next six months, while 21% say they'll reduce their investments, and 47% will stand pat. Less than 1% said they had sold stock as a result of the Enron mess. (In a Nov. 30-Dec. 1 Business Week/Harris Poll, conducted before the Enron bankruptcy and scandal publicity, 28% said they would invest more, and 24% said they would invest less.)
"Americans have a lot of suspicions [about companies], but they're not ready to dump the stock market," says Thomas Riehle, president of Ipsos-Reid U.S. Public Affairs. "They're not changing their investment patterns, but they're more cautious about the companies they're investing in." Riehle says the appetite for investing is far smaller than it was in the boom years of 1999 and 2000, but he attributes that to the stock market slide and the events of September 11, not Enron.
BLAMING THE BOARD.
How do investors view Enron's problems? They place primary blame on the company's board (89%) and auditors (83%). A much smaller number think the White House (34%) and Congress (42%) share responsibility. Investors are very critical of stock analysts: 58% say they share some or a great deal of the blame. Among those following the Enron story closely, 62% finger Wall Street analysts. Noninvestors are far more likely to blame politicians, as well as execs, for the mess.
Investors strongly believe the government needs to pass new laws and regulations to minimize future corporate wrongdoing. Investors are nearly unanimous (99%) in supporting a proposal to subject top corporate officials involved in serious financial fraud to criminal prosecution.
And 96% want Congress to require top execs to release more timely and accurate information about their company's financial health to employees and investors. (Investors feel particularly strong about shining a spotlight on financial reports, with 87% strongly in favor of improving disclosure requirements.)
NO MORE BUREAUCRATS.
Another strongly backed proposal would beef up the SEC's auditing and enforcement divisions -- 76% of investors and 80% of adults favor this idea. A slimmer majority of investors (61%) favors reducing the time periods in which participants in company 401(k) plans cannot sell their shares.
Two prominent reform plans get thumbs down from investors and noninvestors alike. Only 24% and 34%, respectively, want to create a new government entity to handle corporate accounting. And investors don't want to limit an employee's right to invest in company stock (46% favor, 52% oppose). So while Americans have no desire to see the government too deeply involved in their investment decisions, they do want Uncle Sam to make sure enough reliable information is available for them to make those decisions.
By Richard S. Dunham in Washington