After Enron

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 of truth.

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.

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