by Ralph Nader
The Progressive magazine, March 2002
The Enron scandal is a supermarket of corporate crime, fraud,
and abuse. There are already twelve Congressional subcommittees
investigating this proliferating Enron scandal. But Congress,
whose members are marinated in campaign contributions from Enron
and its accountant, Arthur Andersen, cannot just hold hearings
and occasionally return campaign contributions.
The members need to adopt a series of structural reforms to
get at deeply embedded and recurring patterns of corporate malfeasance.
If you were looking into the minds of corporate lawyers who
are being retained by Enron and Arthur Andersen, they would be
saying, "Here we go again. We've gone through scandals before-perhaps
not quite as high profile, but we've endured. We're going to string
this along. There is going to be a pattern of imperviousness to
scandal. The public will tire of it. The media will tire of it.
And by a war of attrition, and by continuing to give money to
key members of Congress from a variety of non-Enron, non-Arthur
Andersen sources, the effort of comprehensive reform will be blunted."
The first stage of making Enron the great engine for long-overdue
structural reform is to document the wrongdoing.
And it's not just Enron or Arthur Andersen. It's systemic,
as George Will pointed out. There is an epidemic, a corporate
crime wave documented in vain by dozens of exposes in the past
decade by major media such as The Wall Street Journal, The New
York Times, and 60 Minutes.
But simply documenting the wrongdoing can be a trap.
The Watergate scandal was exposed ad infinitum in the '70s,
and in the end, Senators Sam Ervin and Lowell Weicker, based on
their comprehensive and widely televised hearings, recommended
thirty-two reforms. Only about two or three were enacted.
Later; the S&L scandals, costing taxpayers half a trillion
dollars in bailouts, came and went without authentic reforms.
There is every possibility that this giant pyramid racket
will ride itself out and produce a number of books and magazine
articles without any fundamental change. Already, you can see
Tom Donahue of the U.S. Chamber of Commerce and others developing
a strategy of quarantining Enron as just one big bad apple and
not characteristic of dozens and dozens of other large companies
in inflating earnings, including Lucent, Waste Management, Sunbeam,
and many others.
This won't wash if we can link the scandal to the damage it
has caused real people in this country: poor people, low income
people, middle income people, people with investments in state
pension funds or private pension funds, as well as the employees
of Enron, and the ripple effect throughout the economy that undermines
confidence in the securities market by investors everywhere, a
point made on page one of The Wall Street Journal.
Once the wrongdoing is documented, and once the damage in
human terms is elaborated, then we can move to the structural
reforms: most obviously, public funding of campaigns. As a first,
modest step, the Shays-Meehan bill needs to be enacted, and President
Bush will likely sign it because he's so close to Enron and has
taken so much funding from Enron in his election campaigns that
he won't be able to veto it.
But there also has to be much more meticulous reform all the
way down to the state level.
There needs to be a reform of state chartering laws so that
corporations would have to demonstrate their good character to
obtain or retain their charters.
There needs to be state passage of corporate decency acts,
which would develop a variety of new and more enforceable standards
to make it clearly unlawful for any corporate official to destroy
or falsify documents or to negligently allow the destruction of
documents pertaining to hazards or frauds to the public.
There needs to be stronger whistleblowing protections. There
are now more and more people inside Arthur Andersen and Enron
and their law firms who might become whistleblowers, but they
shouldn't have to risk their entire careers in order to make statements
State accountancy licensing boards need to wake up and enforce
their suspension or revocation standards for violating accountants.
There needs to be a much more thorough annual reporting requirement
for corporations, and the Securities and Exchange Commission (SEC)
needs to be given the assignment of licensing auditing firms.
For large corporations, the SEC should assign qualified licensed
firms at random to conduct audits, much as judges are assigned
in federal courts. No company should be able to select its own
favorite auditor. In recent years, audit firms have become "consultants"
to many companies in addition to being their auditors. This practice
has generated lucrative fees for the auditors and created a conflict
of interest that destroys the independence so important to a credible
audit. Legislation should prohibit accounting firms from accepting
these consulting jobs for three years after they have conducted
a financial audit of the company.
There also needs to be adequate prosecutorial budgets. It
doesn't make sense to have strong laws when there is no money
to hire the investigators and pay the prosecutors. The SEC is
woefully, grossly underfunded and should have a budget three times
what it has.
However, even that is not enough. New laws, without the will
to enforce them, won't solve the problem. Crime in the suites
damages more people's health, safety, and economic resources by
far than crime in the streets. But crime in the suites is not
on the top of the agenda of the Democratic and Republican parties.
Nor is it on the agenda of Congress or the White House. The only
way it is going to be on the agenda is for the American people
to organize as investors and pension holders, and along with distinct
professional groups-upstanding economists, accountants, lawyers,
and others-to make representations before their members of Congress
and before the key investigating committees that this is one scandal
that's not going to blow over, this is one scandal that's not
going to be swept under the rug.
Enron is not just one big bad apple, Arthur Andersen is not
just one big bad accounting firm. They represent a pattern of
similar misbehavior through one industry after another.
Congress, riddled and compromised by contributions not only
from Enron and Arthur Andersen but from the entire financial industry,
has a tough job on its hands. But the job has to be done, because
there have been too many other Enrons out there in the corporate
world with variations on the scheme to deceive and dupe the public.
Flashy televised hearings are not enough. We need the federal
cop on the corporate beat as both an apprehender and deterrer
of corporate crime.
Everyone has to do his or her part. It takes only a few modest
minutes to write or call your members of Congress, who have their
fingers to the wind, and say, "It's not enough to investigate.
You must pass structural legislation that deals with these patterns
of corporate crime and abuse and that empowers the defrauded classes
themselves. It is time for Congress to be more than concerned.
It is time for Congress to get serious."
Out of this scandal a lot of good can come. And it will come
only when many of the people who are affected by the ripples of
this Enron scandal contact their representatives and demand action.
Both parties have got their hands sticky with Enron and Arthur
Andersen, and both parties may decide to cool it because they're
both implicated in the scandal. It's our responsibility as citizens
to make sure that does not happen.
Ralph Nader, the founder of Public Citizen, ran for President
on the Green Party ticket in 2000. For more information on the
Enron scandal, visit CitizenWorks.org.