Jan/Feb 2002 - VOLUME 23 - NUMBER 1 & 2
E D I T O R I A L
The collapse of Enron is a story far too rich to be reduced to a single
But one crucial narrative is how a series of seemingly small and technical
decisions purchased in Washington, D.C. eventually combined to enable
Enrons implosion and how recent and evolving policy decisions
are paving the way for future Enron-level disasters.
Consider the following: In 1995, the accounting industrys powerful
lobby muscled through Congress the Private Securities Litigation Reform
Act. Under this accountants immunity law, it has become much harder
to sue accounting companies for signing off on bad financial reviews,
removing an important check on the accountants at Andersen and in the
rest of the industry.
As accounting firms decided in the 1990s that they wanted to shed their
stodgy image and solid profitability for the super-profitability of the
high-flying financial hipster elite, conflicts of interest emerged between
the firms audit function and the lucrative consulting business.
To win and maintain consulting contracts, companies like Andersen have
an incentive to go easy when they are auditing companies like Enron. Former
Securities and Exchange Commission (SEC) Chair Arthur Levitt sought to
impose a regulatory prohibition on firms working as auditors and consultants
for the same clients. But the accounting industrys money blotted
out his prudent proposal, as Congress made it clear it expected no such
regulatory prohibition to be put in place.
In 1997, Enron obtained from the SEC an exemption from a law that would
have prevented the companys foreign operations from shifting debt
off their books and barred executives from investing in partnerships affiliated
with the company, according to the New York Times. If Enron had not finagled
this exemption, negotiated for the company by a former director of the
investment management division at the SEC, Enron would have been prohibited
from engaging in many of the financial shenanigans that ultimately led
to its collapse.
Thus did a series of small regulatory and deregulatory actions and non-actions
of which this is only a small sampling erode the law-and-order
barriers to the commission of Enron and Andersens corporate crime
The Enron revelations have not stopped this steady drip.
Case in point: In late December of this past year, the Bush administration
struck from the books a regulation that had considerable potential to
deter corporate crime.
The contractor responsibility rule had been enacted following a tortuous
process. Then-Vice President Al Gore floated the idea in 1997. A concerted
campaign against the proposal led the administration to keep it on hold
until 1999, when the Clinton White House formally issued clarifying rules
to put the proposal into effect. Another corporate outcry led to it being
put back on ice. Finally, the Clinton administration included the anti-scofflaw
rule in the raft of regulations issued in its final days.
The rule went into effect on January 19, 2001. The Bush administration
suspended implementation on January 20 [see Defending Corporate
Irresponsibility, Multinational Monitor, May 2001]. The Christmas
coup repealing the rule altogether was the last chapter
in the defeat of the rule.
The Chamber of Commerce applauded the repeal of the rule, which it had,
spectacularly, denigrated as blacklisting. In the fanciful
scenario spun by Randel Johnson, Chamber vice president for labor and
employee benefits, under the anti-scofflaw rule, government agents
could have wielded virtually unlimited power.
Although Johnson and the business opponents of the anti-scofflaw rule
wildly exaggerated the potential scope of the rule, the rules common
sense direction that government contracting officers should exercise caution
before contracting with recidivist corporations would have exerted some
deterrent effect on corporate law-breaking.
And the rule did pose a threat to more than a few corporations. Multinational
Monitor found that nine of the top 100 corporate criminals of the 1990s
were among the 200 largest federal government contractors in 1998, and
that of the 50 largest defense and non-defense contractors, 20 had received
more than 10 serious citations from the Occupational Safety
and Health Administration. The General Accounting Office (GAO), the congressional
research agency, has found that 261 federal contractors, receiving more
than $38 billion in federal government business in fiscal year 1994, received
penalties of at least $15,000 for violating OSHA regulations, and that
80 federal contractors, receiving more than $23 billion in federal government
business in fiscal year 1993, had violated the National Labor Relations
Act [see Controlling Corporate Scofflaws or Blacklisting,
Multinational Monitor, July/August 1999].
For some large companies, the prospect of endangering government contracts
would have been sufficient to prod them to greater respect for the law.
But the administrations concern for law-and-order or individual
responsibility evidently does not extend to corporations.
Sometime in the future, when another Enron-scale corporate debacle breaks into the front pages, it will be possible to look back to December 2001, and point to the repeal of the contractor responsibility rule as an enabler of the corporate criminals.