After the Fall

The experts weigh in on how to prevent future Enrons.

Edmund Jenkins: The proposals are pretty wide-ranging, so it’s hard to prioritize them. But one thing that concerns me as chairman of the FASB would be the point Sen. [Richard] Shelby makes, to federalize financial accounting standard-setting. All our accounting standard-setting in the U.S. has been independent of the private sector. There’s some concern expressed as to whether the FASB is under the influence of the preparers and auditors. I don’t believe that that’s the case, and I’d be happy to explain why. But I think that would pale in comparison to the pressures we would be under if we were subject to the political whims of Capitol Hill.

Chuck Hill: I think [Enron] is basically a cyclical problem. We’ve seen excesses come in the frothy part of the business cycle. Then, when things start to slow down, people tend to push the envelope, whether it’s a company’s management or the analysts or whoever. And when we get into a market correction, all the warts start to show, and everybody panics.

This time the poster child may be bigger, and what they did may be more egregious than in other cycles. But even that shouldn’t be surprising, because we had a bigger and longer bubble that led up to this. So I think it’s important to get the message out to Congress that this is a cyclical problem.

Isn’t it possible that aggressive enforcement of existing rules is proving to be a sufficient deterrent to abuse, given the punishment that investors are now exacting on companies with even the barest hint of dodgy numbers?

Robert Willens: I think it is. I think we’re going to find that whenever there is a choice to be made, with respect to the reporting of a transaction or an item, that a company is going to err on the conservative side. I’m not sure that’s necessarily a good thing, either, because you can go too far on the other side as well. You can do violence to the matching principle of accounting. So there’s a bit of hysteria. But I think the horse has left the barn, unfortunately. Things are going to have to happen to satisfy the politicians.

Peter Clapman: From an investor perspective, I think there is going to be a greater focus on broader corporate-governance issues that emerge out of the Enron situation — how the board is functioning, whether it appears to investors that there’s board independence, and committees that have the competence and the ability to do the job. How stock options are being used today — this is one of TIAA-CREF’s key issues.

Laura Unger: I think we’re seeing a convergence of several issues. One is the economic downturn. Another is the increased complexity of Corporate America. Another is the accountability of the industry, the professionals — the lawyers, the auditors, the corporate executives — and then below that, the investment community — the analysts, the underwriters, and the standard-setters. How can you improve everybody’s accountability in this process, so that we have the most transparency of information and the most-liquid capital markets in the world, with integrity?

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