The Enron Scandal-- Why Was No One Minding The Store?
The headline-grabbing Enron scandal is proving to be a cattle prod thrust deep into the haunches of the political establishment. Suddenly, members of Congress are falling all over each other in an effort to grab a piece of the Enron investigation limelight. No fewer than eight House and Senate committees are already holding hearings or plan to hold them in the near future.
But where were all these guardians of the public interest when Enron's executives were playing fast and loose with the books while bilking employees and investors out of their life savings? Maybe they were at the bank cashing all those campaign checks doled out by free-spending Enron executives -- or having a free lunch with one of the company's high-powered lobbyists.
Nor were our political leaders the only ones asleep at the switch. Where, for instance, were the "independent" Wall Street experts who, despite having serious doubts about how Enron actually made its money, kept touting the company, helping send its stock price soaring? Clearly, the market bulls were all too eager to buy into the company's bull.
And where were the "independent" financial journalists who, instead of digging for answers, collectively genuflected at the mere mention on the Enron miracle? (The editors of Fortune voted Enron the "most innovative" of the magazine's "most admired" companies six years in a row.)
And where were the "independent" members of Enron's board of directors, some of whom Enron rewarded with lucrative consulting contracts or generous donations to their favorite charity?
Unfortunately for Enron's investors and employees, we know exactly where the bankrupt behemoth's longtime auditor, the accounting firm of Arthur Andersen, was while the company was being looted: double-dipping as highly paid consultants. Arthur Andersen pocketed a cool $27 million from Enron while also inspecting the company's books. Now there's a recipe for objectivity. It's just a tad harder to blow the whistle when you're making a mint.
How, you might ask, can such a mega-million dollar conflict of interest be legal? Well, actually, we have the new head of the Securities and Exchange Commission (SEC) -- the government body charged with regulating this kind of financial monkey business -- to thank for that.
Here's what happened: Last year, then-SEC Chairman Arthur Levitt proposed a long-overdue ban on accounting firms performing additional services for companies they are auditing -- precisely the sort of dual relationship Arthur Andersen had with Enron. But his efforts were beaten back by a furious lobbying campaign mounted by the accounting industry's uber-lobbyist, Harvey Pitt, a man who has made a career out of butting heads with the SEC.
So when the Bush administration got around to naming its choice to head the watchdog agency this summer, who do you think they picked? That's right, SEC nemesis Harvey Pitt. Which is a little like naming Osama bin Laden to run the Office of Homeland Security.
Now I'm not saying that Pitt is corrupt -- just the wrong man for the job. Soon after taking office, the new chairman promised to turn the SEC into a "kinder, gentler" agency. But, as the Enron debacle proves, we don't need regulators who are kind and gentle -- we need them to be vigilant and unrelenting.
In another example of our leaders' blurry oversight, many of those on the Hill now calling for the heads of Enron officials were noticeably silent when Pitt sailed through his confirmation process. Which is not surprising given the cozy relationships that permeate that world. Just last week, Pat Shortridge, a top aide to Dick Armey who had recently left his office to lobby for Enron, quickly returned to work for the House majority leader as soon as the Enron gig turned sour.
A host of changes are clearly needed to ensure that the Enron fiasco isn't repeated. Some are legislative, some involve campaign finance reform. But these will all take time. We need something that will show that Washington is ready to get serious about minding the public good -- and not just hogging the scandal spotlight.
Which is why Harvey Pitt should resign before the year is out. I'm sure he won't be out of work long -- I hear the folks at Enron could use a good lawyer.