Past Editorials
Learning From Enron -- maybe the wrong lesson!!

 Back



Posted:
15 January 2002
-------- Original Message --------
Subject: Learning From Enron -- maybe the wrong lesson!! (guru)..
Date: Sun, 13 Jan 2002 14:39:38 -0600
From: Roy Beavers <guru@emfguru.org>
Reply-To: roy@emfguru.org
Organization: EMF-L List
To: gephardt@mail.house.gov
CC: guru <guru@emfguru.org>
 
 

Hi everybody:

The renowned and prestigious Washington Post is thought by some to be the guardian of the American (read: Washington) "establishment" ethos. The paper that "keeps 'em honest."  That shines the light upon their transgressions, particularly the transgressions of the nation's political establishment.

But when push comes to shove, the Post is not.  After all, the Post must rely for much of its advertising income upon the very same Washington crowd about which it reports -- particularly when it comes to the corporate crowd.

Thus, perhaps one should not be so surprised to read in the Post editorial below a surprisingly facile and shallow interpretation of the events that are unfolding under the rubric, "the ENRON story."

If one takes the Post version as 'the whole story,' then all that the ENRON saga is about is:  "The real scandal about ENRON is ... that a public company, with a legal obligation to report accurately on its finances, concealed the true state of those finances from its owners."

Wrong....  The real scandal within the ENRON story is that it reveals (only a glimpse, actually) the true state of the relationship between the government and the free enterprise system in America today.

It is a system where the chumminess of insider conflict of interest cover-up is routinely used to mislead, defraud, embezzle and exploit -- not only the stockholders and the employees in ENRON's case, as cited by the Post --  but the general public and the national interest as well.

Conflict of interest between government and corporate officials has become so endemic within our system of government that one is very much inclined to overlook it entirely.  It has, indeed, become a part of the Washington political landscape.

Keep in mind that ENRON engaged in essentially the very same "insider" tactics only a few years earlier when they (with others in the energy industry) concocted a phony electricity "shortage" in California to fatten their sales, which, in turn, they further inflated to produce the over-stated profits that became their downfall.  Thus, the Post editorial concludes that the great failing in this case is that of an accounting system (or a single company) that failed to do its duty.

Yes, there was that, but much more.

A careful reading of the Post editorial below makes it plain that "the scandal" -- the real scandal -- is the system, itself. A system that has come to allow conflict of interest as the norm.  As merely 'part of the game.'  (Or "the culture" to use the fashionable word of our time.)

Each of the three recommended changes to that "game" by the Post are but the fine tuning of a corrupt premise:  the premise that independent action and judgment can be assumed to result even when conflict of interest is present.

Time and time again that premise has failed us.  When will we ever learn?

When conflict of interest is present, it should be the EXPECTATION that the individuals involved will "shade" their judgments to protect their own personal interests!!!  That is not just human nature.  It is history.

Thus, if we want to cure what ails Washington, it is conflict of interest that must be outlawed and regulated.  As the Post suggests below, auditors who are under a 'fiduciary responsibility' to report honestly to the public -- and to withhold nothing -- cannot at the same time be permitted to engage in profit-making activity with the company they are auditing.  That should have been self evident long ago!

Similarly, it should be self evident that: politicians who benefit from large political contributions of soft money ... should not be tolerated when they invite those contributors into a special "consulting" relationship with the government for the purpose of drafting legislation regulating the economic activity of those contributors.

You know who I am talking about!! ENRON again!! And the George Dubya Bush Administration!!!

Only very weak voices of alarm were heard when the energy and electrical industry 'insiders' (with a prominent ENRON role) were all taken into the private, secret confidence of the government during the planning for a new national energy policy by the Vice President's commission earlier this year.

That was conflict of interest on a broad, national, whole industry scale! And, but for the recent ENRON debacle, the Bush Administration would have gotten away with it....  After all, we all know that such routine use of 'vested interest' insiders has become the "norm" in Washington -- the granting of special favors of "access" to the BIG $$$$$$ corporate and individual contributors when legislation that might affect them is being considered.  (All the readers of this list well remember the debacle of the 1996 Telecom Act, I am sure.  The PUBLIC was left out of that one entirely.  Virtually the entire Act was drafted by the telecom industry, itself.  And exploitation of the public has been the result.)

Oh, but "access" does not mean that 'special favors' have resulted, you say....

Doesn't it???

That is certainly what we are now being told as this ENRON saga unfolds.

"The Bush officials behaved properly," it is being said. "They didn't come to ENRON's rescue with any government loans or other action, nor did they interfere with any of the regulatory machinery."

....So, does that mean that they are blameless??

They kept quiet didn't they???  They did nothing to engage the enormous potential power of the government to alert the public and to protect the stockholders or the employees.

Is it the proper role of government to merely sit back and 'keep secret' possible misbehavior by industry ... while the government merely watches disasters occur to the stockholders and employees in such situations?  The American public, too, had a large stake in the ENRON disaster.  The government's first duty is to serve that mission -- the public's stake.

When you get right down to it -- the only action the Bush Administration could have done to benefit their cronies at ENRON was to keep quiet.  That is exactly what they did!!!

Thus, conflict of interest asserted itself once again....

Imagine (we don't have to imagine -- it happened in the Phen-Fen case), but bear with me and just imagine it anyway.  Suppose ENRON had been in the pharmaceutical business and it sold some bad medicine which a reviewing panel of scientists (who were also "consultants" to the company) discovered.  And, through some comfy "insider" connections ... one or two top government officials who had benefited from BIG $$$$$$$$
contributions from ENRON ... heard about it.  And they kept quiet.....

What do you think would happen in such a case if it were the drug industry rather than the electrical industry?????

I agree.  Conflict of interest in a case that so flagrantly threatened public health as that ... would probably lead to the just "accountability" of those guilty.

Is there any REAL difference between that kind of conflict of interest and what we are seeing in the Bush political contributions/ENRON case???

The scandal in Washington these days -- certainly going back at least through the eight years of the Clinton Administration as well -- is the 'special favors influence' (not just "access") that the BIG $$$$$$$$$ contributors get ... that the rest of us don't get......

It affects all aspects of our government.  Governmental regulation is affected.  In most cases, these days, the regulators are selected by and appointed from the ranks of the industry they are supposed to regulate -- largely because of the "bought" influence of the BIG $$$$$$$$$$ contributors....  The result is very "friendly" regulation.  (But not "friendly" enough to satisfy the republicans who would do away with
regulation totally.)

Governmental "science" has been affected.  We, who are engaged in the thankless task of trying to educate the public about the hazards of electromagnetic radiation, know that story well.  It is fully spelled out on the pages of guru's website, in the "conflicts" file <http://emfguru.org>.  To mention one quick example (which my readers already know, but others may not): the research to determine how "safe" or "unsafe" are the cell phones now being sold to hundreds of millions of users is being conducted by the cell phone industry, itself.....!!!  Not by some independent "third" party......  That is the result of another comfy agreement between the government and the industry!!!

But, most of all, governmental POLICY is affected.  The conflict of interest of the UNLIMITED $$$$$$$$ from BIG political contributors to Senate, House and Presidential candidates has become the engine that is steering the system.  It doesn't simply "grease the wheels" of politics -- as is sometimes asserted.  It has become the engine, itself!!

And, the continuation of editorials that look the other way ... to blame a few individuals or companies ... with a suggestion that they are just 'bad apples' ... perpetuates this corruption of the system, itself....

....A system that rests upon the assumption that good government is possible where conflict of interest  is allowed.....

It isn't.....  Good government is NOT POSSIBLE when million$$$$$$ of unlimited soft money "political" contributions are sloshing around in the system ... for the taking ... by legislators and public officials ... who are NOT being held accountable by the laws.....

That is the worst conflict of interest of all.....

The ENRON case is simply the tip of that iceberg.....

[The Post editorial]
http://www.washingtonpost.com/ac2/wp-dyn/A34693-2002Jan12?language=printer

Cheerio........

Roy Beavers (EMFguru)
roy@emfguru.org

It is better to light a single candle than to curse the darkness.....

The only thing necessary for the triumph of evil is for good men
to do  nothing.....     .......Edmund Burke (1729-1797)

PEOPLE ARE MORE IMPORTANT THAN PROFIT$$$


                   © 2002 The Washington Post Company
 

Learning From Enron
 
 

Sunday, January 13, 2002; Page B06

LAST WEEK the scandal around Enron deepened. The Justice Department announced a criminal investigation into the firm's collapse, and the Bush administration belatedly came clean about a number of high-level contacts it had with Enron and its creditors as the firm headed toward bankruptcy. More may yet come out. But for the moment there is no evidence that the Bush team was improperly embroiled in the firm's deceptive schemes. Enron appears to have sought help from the administration in securing fresh credit from its bankers and in staving off a downgrade by a credit-rating firm. But no help seems to have been given.

The real scandal about Enron is different. It is that a public company, with a legal obligation to report accurately on its finances, concealed the true state of those finances from its owners. Those owners included many small investors who either held Enron stock directly or through their retirement funds, and who have been cheated. Many Enron employees, who were encouraged by the company to fill their retirement plans with company stock, have been left with little or nothing. Meanwhile Enron's senior managers, who either perpetrated the fraud or at a minimum failed to prevent it, have extracted millions in pay and bonuses from the company.

The task now is to identify those responsible for this disaster and to devise regulations that might prevent its recurrence. As well as senior officials within Enron, the spotlight must fall on Arthur Andersen, the auditing firm that was supposed to certify the accuracy of Enron's accounts. Auditors often defend themselves in such cases by blaming the firm, claiming that managers gave them false numbers to work with. But in Enron's case, Andersen has already admitted that it spotted accounting mistakes and suggested that they be put right, but then certified the accounts as accurate without any corrections. What's more, Andersen now confesses to have destroyed documents related to Enron, not the usual behavior of an innocent party.

Three kinds of reform might make corporate accounts more accurate in future. The first is to make corporate board members take their responsibilities more seriously. Boards are supposed to ensure that managers act in shareholders' interests, and a key part of their job is to appoint tough auditors to verify financial statements. But board members often do managers' bidding, either because they are drawn from management ranks or because their independence is compromised by consulting contracts with the company. Enron board members received thousands of dollars from the managers they oversaw. This practice should be strictly limited.

Second, and most important, the rules by which auditors work should be made tougher. At present, the Financial Accounting Standards Board is reluctant to take a hard line on accounting tricks used to deceive shareholders, in part because the board depends on auditing firms and public companies for its budget. As a result, Enron's practice of concealing its risky financial instruments in partner firms may actually have been legal under the board's standards, even though it rendered its published accounts meaningless. This is scandalous; no investor, no matter how sophisticated, could have known the full extent of Enron's obligations (which sank the firm). Until firms are required to disclose completely their obligations, how can stockholders know which firms are burdened by debts that don't appear on their balance sheets? And if stockholders can't reliably know the extent of corporate obligations, how can it be safe to buy stocks?

Finally, auditors' independence should be ensured. At present, auditors provide consulting services to the firms they oversee, harming their independence in the same way that board members compromise themselves. Setting a cap on such services, or requiring more detailed disclosure of them, is worth considering.

None of these changes will be easy, to be sure. But Enron threatens "a massive loss of public confidence in the numbers that are the bedrock of American markets," in the words of Arthur Levitt, the former head of the Securities and Exchange Commission. He is right, and it is time to do something about it.

                   © 2002 The Washington Post Company


 
 


 Back to Top

Back