All Business

ANGER’S SHORT SHELF LIFE

Vigilance against corporate fraud is already fading away in the U.S.

STEVE MAICH February 14 2005
All Business

ANGER’S SHORT SHELF LIFE

Vigilance against corporate fraud is already fading away in the U.S.

STEVE MAICH February 14 2005

ANGER’S SHORT SHELF LIFE

Vigilance against corporate fraud is already fading away in the U.S.

All Business

STEVE MAICH

ON THE 1400 BLOCK of Smith Street in downtown Houston stands a 50-storey skyscraper wrapped in green tinted glass. Curved edges on the facade are its only notable architectural feature. Today, this is just another office building, utterly unremarkable in almost every way. But three years ago it was the epicentre of an earthquake that rocked the business world—back when it was known as the Enron Building.

Drive south along the freeway toward Galveston and you’ll pass the home of the Houston Astros baseball club. It used to be known as Enron Field, and it was the centrepiece of

the energy and pipeline company’s proud connection to the city it called home. Now it’s called Minute Maid Park.

You could travel around Houston all day and find no evidence of the Enron name, or the infamous red, blue and green tilted-E logo. There’s nothing to indicate that Enron once employed 20,000 Houstonians, and no sign of the devastation it left behind when it collapsed into bankruptcy in late 2001. The only reminders come in daily press reports on the criminal cases against former top executives Jeffrey Skilling and Kenneth Lay, but even those stories seem to be of only passing interest in a city that has grown weary of the whole sordid affair.

Skilling’s lawyer recently commissioned a poll asking residents what they thought of

his client, Enron’s former CEO.

The question drew a few sharp responses. “He is the devil,” said one person. Others called him a “snake” and a “pig.” But on the whole, the survey revealed more ambivalence than vitriol. Only 32 per cent of respondents held

negative opinions of the man. Thirty-two percent! What does it take to get a bad reputation in this town?

But maybe the tepid polling numbers shouldn’t come as a big surprise. Anger, no matter how intense, is inevitably blunted by the passage of time. And besides, the good folks in Houston are not alone in their apathy. Throughout North America, the drive for tougher corporate oversight is flagging.

A couple of years ago, regulatory crackdowns and investor rights were hot political causes. The public’s shared sense of outrage over Enron—and WorldCom, and Tyco,

and Adelphia, and Nortel Networks, to name just a few—brought about higher standards for disclosure, tougher penalties for whitecollar crime and an infusion of money to enforce the new laws. Even in Canada, where market regulation is a non-contact sport, there were fresh criminal sanctions for insider trading and a task force dedicated to investigating securities-related crimes. But that kind of popular political momentum doesn’t last forever.

It’s been awhile since an accounting scandal toppled a major corporation, and arcane debates over rule changes and investor protection just don’t have the same resonance when CEOs aren’t being led off to jail every day. Naturally, as the public’s anger over the various scandals has waned, so has the

A RECENT POLL asked Houston residents about Enron’s former CEO. Only 32 per cent held negative opinions. What does it take to get a bad reputation in this town?

political will to protect against future frauds.

For the past few months, George W. Bush and his cabinet have been sending unmistakable signals that the crackdown on corporate crime is over. The president’s pick for secretary of commerce, Carlos Gutierrezformer CEO of cereal giant Kellogg—has said he will fight to reduce regulatory controls that “unreasonably burden” big business. In late January, the head of the Securities and Exchange Commission said some governance rules may be relaxed for foreign firms operating in the U.S.

But the most striking change of tune has

come from U.S.Treasury Secretaryjohn Snow. Exactly one year ago, Snow was practically pounding the table for new laws and bigger jails to lock up corporate crooks. He said beefing up securities regulation was “an imperative for the nation” and that various scandals “shocked the conscience of all of us.”

Well, it appears Snow’s conscience has fully recovered. In December, he told the Wall StreetJournal that this whole regulation thing may have gotten out of hand. The U.S. must find a “balance” between protecting investors and not stunting economic growth, he said. “We don’t want to criminalize mistakes.” To recap: in February, protecting investors and upholding public trust in the markets were paramount. Ten months later, the biggest fear is of “criminalizing mistakes”—as if the SEC has been running around slapping handcuffs on anyone who hits the wrong button on a calculator.

Let’s get one thing straight, for the history books: Enron executives didn’t accidentally hide billions in debt. WorldCom’s leaders didn’t forget how accounting rules worked. Neither did Nortel’s. And Conrad

Black didn’t mistakenly use the company chequebook to pay for his wife’s $42,000 birthday party. These were conscious decisions by executives who considered themselves impervious to pesky shareholders and weakling regulators. Each case

provided more evidence that corporate oversight in North America was a joke.

But defending the public interest is only politically expedient so long as the voters are paying attention. Outrage has a short shelf life, and most people have already forgotten who Jeff Skilling is, and why they were supposed to be mad at him in the first place.

Even in Houston, Enron is history. And history is bound to be repeated. The process has already begun.

Read Steve Maich’s weblog, “All Business,” at www.macleans.ca/allbusiness