When we're looking at Enron, are we seeing a particular company that's gotten in trouble? Or is this a symptom of something larger in our economic system?
It's a symptom of something larger. It's beyond Enron; it's beyond Andersen. It's embedded in the system at this time.
What's the problem?
Probably, the number one problem is there's just been a change in culture that arose out of the go-go times of the 1990s. Some people call it greed. But I think it is an issue where we got a lot of financial conflicts built into the system, and people forgot, quite frankly, about the investors.
Do you mean most "people" in general, or company audit committees, or corporate executives, or auditors? I guess one of the basic questions is, why didn't the watchdogs bark? Why didn't we get a warning?
... I think, quite simply, everyone was looking out for their own pocketbook. They were looking out for their own interests, and those interests were placed ahead of the interest of the investors.
You mean they were making so much money by serving the companies?
I think in Enron's case -- and I certainly don't think they're the only case -- these companies became like the golden goose, and everyone was standing at the door trying to get a golden egg. And we're not talking a few dollars, or a thousand, or even hundreds of thousands of dollars here. In some of these cases, people were paid millions or tens of millions of dollars for doing what they were doing for the companies.
That obviously impacts their own pocketbook. You just have to trace the flow of money, trace the cash. Eventually it runs from Enron back to these people.
You mean to Andersen, to the bond-rating agencies, to investment bankers?
Correct. It runs back to the professionals who they were dealing with: auditors, attorneys, rating agencies, analysts, underwriters, many other financial advisors.
So what's the mindset in these companies? What's the mindset in Vinson & Elkins, the law firm? What's the mindset in Andersen, the accounting firm? What's the mindset in Goldman Sachs, or Merrill Lynch, the investment bankers, when they're dealing with Enron?
Having been in one of these Big Five international accounting firms, I can tell you that over the last 10, 15 years, the mindset has evolved from one of looking out for the investor and placing their interest first -- because [auditing] is truly a public function, a public franchise -- to one of, "We're a great big international business, and business comes first. And that translates into how much revenue, how much profitability can we get out of each of these companies; not just Enron, but each of these audit clients."
And as we've seen, they all grew their consulting practice phenomenally during the 1990s to accomplish that, and that has become what their business is. They used to be principally auditing firms. Today they are a business firm, and the CEOs and culture at the top of these firms is, "What can we do make our business more profitable?"