Posted on 12/01/2002 11:27:42 AM PST by Ernest_at_the_Beach
Dec. 1, 2002, 10:22AM
They succeeded, but not in the way they imagined.
Enron's flight into bankruptcy court a year ago has sparked the most sweeping business reforms since the Great Depression. Changes are now being mandated in accounting and corporate governance, stock research, pension plans, financial reporting and many other areas.
In fact, many of the safeguards that are supposed to keep American businesses on the level are being re-examined -- all because of a series of corporate implosions that began at 1400 Smith in downtown Houston.
And much more may come.
"I think we're just getting started," said Arthur Levitt, former head of the Securities and Exchange Commission and a longtime advocate for reform.
Few of the ideas being proposed are really new. But the Enron scandal -- followed in quick succession by disasters at WorldCom, Tyco, Adelphia and elsewhere -- created a momentum that was irresistible.
Reformers worry the results will, ultimately, amount to little. But others fear the new legal mandates and feel-good regulations will have unintended consequences that are both vast and malignant.
Both sides agree, however, that Enron led the way.
Recent corporate scandals involving Michael Milken, the junk bond king convicted of insider trading, and Charles Keating, head of the institution that was emblematic of the savings and loan disaster, did not prompt change on a scale remotely approaching today's.
To find a wave of business reforms comparable to the last year, historians have to look back more than seven decades to the stock market crash of 1929.
"Change in America takes place, most usually, after a crisis," said Levitt, author of Take On the Street: What Wall Street and Corporate America Don't Want You to Know
Although Enron and its ilk certainly spawned a crisis, the country's capitalistic foundation has not been shaken, as it was during the Depression.
"Nobody's going around advocating socialism. Nobody is advocating getting away from a market economy, and in the '30s they were," said Forrest McDonald, a retired history professor from the University of Alabama.
The last year has, however, certainly severely shaken investors' confidence. "What a lot of us assume is the market is generally better at sorting out problems than the government. What's happened ... throws some real doubt into that set of assumptions," said University of Pennsylvania law professor David Skeel, author of Debt's Dominion: A History of Bankruptcy Law in America.
After the crash of '29, it took four years for lawmakers to begin passing significant legislation.
In 1933, the federal government adopted the "truth in securities" law requiring companies to disclose specific financial information before issuing stock and passed the Glass-Steagall Act separating investment firms from commercial banks.
In 1934, the Securities and Exchange Commission was created to oversee publicly traded companies. In 1935, public utility holding companies were required to invest all their earnings in assets that provided electricity, natural gas and water.
The Enron collapse has so far resulted in only the Sarbanes-Oxley Act. The patchwork piece of legislation tightens oversight of accounting, strengthens criminal penalties for corporate fraud and holds executives more accountable. The SEC is still crafting regulations to implement that law, and various other federal agencies, quasi-public entities and business groups are joining in the regulatory free-for-all.
"We've reacted a lot quicker," said Charles R. Geisst, author of Wall Street: A History. "It may not be quite of the same magnitude, but it's awfully close."
Critics question the wisdom of pushing legislation through so quickly. Specifically, they say, Sarbanes-Oxley will prove to be almost unworkable. "The legislation is so vague that you're going to have to rewrite the whole thing," said business columnist and American Enterprise Institute resident scholar Jim Glassman. "The political cure may be worse than the market disease."
The nation's financial institutions chafed under the restrictions imposed by Glass-Steagall, and it took 63 years for those rules to be relaxed.
"When you enact laws like this, it's very hard to get rid of them," Glassman said.
Ultimately, government can force only so much change. One Enron source, asking not to be named, summed it up: "You can't legislate against stupidity."
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