Congress is crawling all over the Enron scandal, looking for a regulatory answer to the abuses that brought the company down. And it may be that the rules governing accounting and retirement plans need to change.
But this scandal is likely to change the way the nation does business not because of tougher oversight or new regulatory rules, but because of some soul-searching in the boardrooms of corporate America.
The people who run business in this country are examining the way they do business–and if they aren’t, they ought to be. Many will do so out of a sense of duty, and they will confirm what they knew, that they have operated with appropriate diligence.
But some will do so because of a more primal urge: self-preservation.
There were, no doubt, some bad actions at Enron and its accountant, Arthur Andersen. And here are the immediate consequences: One company has failed. The other is losing customers and desperately trying to restore its reputation. Both face the possibility of criminal charges and the certain prospect of years of civil litigation.
The threat of destroying your business, going to prison or hefty fines tends to sharpen the senses.
Is the nation going to tolerate such cowboy practices as we’ve seen in this case? Consider this call to action: “Through stricter accounting standards and tougher disclosure requirements, corporate America must be accountable to employees and shareholders and held to the highest standards of conduct.”
Ralph Nader? No. Some pinstriped lawyer suing Big Business? No. That came out of the mouth of pro-business Republican President George W. Bush in his State of the Union address.
Everyone talks about how important consumer confidence is to this fragile economy. Well, there was an ominous rumble this week on Wall Street when investor confidence took a dive.
Investors are now asking if what they’re being told by companies is true. Time was, the imprimatur of auditors meant something. It told investors these guys are straight shooters or we wouldn’t be certifying their math. Now it may mean we’re sticking to the story that this is legal even if it’s downright unethical and misleading.
No wonder investors are nervous. And if they lose confidence, trust us, there will be no recovery. No more orders, no more money in the till, no more year-end bonuses. That’s the kind of math executives understand.
Arthur Andersen built its business on a reputation for being tough with its clients, for being willing to deliver bad news. That cost it some clients, but it tended to bring more to the fold as its reputation for honesty grew. Something, obviously, changed in the culture at that firm.
Enron isn’t the first time Andersen has been accused of signing off on questionable practices. Last May, it paid $110 million to settle a lawsuit filed by Sunbeam shareholders. And in June it paid fines and was censured by the SEC for overstating Waste Management’s income by more than $1 billion.
Now it is paying the price.
Directors of America’s publicly traded companies have an obligation here to perform actual stewardship. Boards must ask the tough questions–and the meanest SOB should be in charge of the audit committee.
It looks like some of that is starting to happen. A slew of companies are adjusting their financial reports–either voluntarily or under duress.
Regulators forced PNC Financial Services Group to restate last year’s profits after uncovering questionable accounting practices. Poof, 25 cents of every dollar disappeared. That’s the kind of math executives understand.
The clearest sign yet that there is a tectonic shift going on: PricewaterhouseCoopers, the largest of the Big 5 accounting firms, isn’t waiting for all the hearings and investigations into potential conflicts of interest posed by selling both accounting and consulting services. It’s spinning off consulting into a separate firm.
It’s possible all those hearings on Capitol Hill will produce results. A regulatory answer may be in store, but the real cure is going to come from business leaders coldly assessing the way they do business.
Corporate chiefs are good at that. They assess costs and benefits each and every day. Now it’s their survival at stake. That’s the kind of math executives understand.
