Corporate Power: End of the Enron Era?

Corporate Power: End of the Enron Era?

May 26, 2006

Yesterday, a jury convicted former Enron chiefs Kenneth "Kenny Boy" Lay and Jeffrey Skilling of conspiracy and fraud in "one of the biggest business scandals in U.S. history." "You can't lie to shareholders, you can't put yourselves in front of your employees' interests," prosecutor Sean Berkowitz said. "No matter how rich and powerful you are, you have to play by the rules." Rep. Michael Oxley (R-OH) believes the "end of the trial will mark the end of a dark era." Others aren't so optimistic. "Some people say this is the end of an era," said corporate monitor George Stamboulidis, "but I don't think it is." As Slate’s Daniel Gross writes: "Alas, the accounting games and executive-compensation excess that began in the 1990s are still very much with us. Some of the most obvious offenders have been caught, but huge amounts of corporate corruption remain."

• Big business lobby is trying to undermine the rules Congress passed to prevent “future Enrons.” Soon after the major corporate scandals came to light, Congress passed the Sarbanes-Oxley Act (PDF) to require greater transparency and oversight of corporate accounting practices. "Fundamentally, Sarbanes-Oxley is correct and is here to stay," said corporate governance expert Charles Elson. "It changed the course of business in this country." But Sarbanes-Oxley "now faces a backlash" from the powerful big business lobby. Right-wing groups like the Free Enterprise Fund (a group spun off from the radical Club for Growth) have filed suit in U.S. District Court "seeking to overturn the law.” (PDF) The Washington Post gets it right: "The welcome convictions in the Enron trial do not make post-Enron accounting reform any less necessary. ... This decade's business scandals were not just about bad apples, and putting those apples in jail is not going to change that."
  
  
• White collar fraud continues to rise, more vigilance is required. White collar crime prosecutors will remain busy because "fraud in the workplace is alive and well in the post-Enron era." The Association of Certified Fraud Examiners calculated the U.S. lost $638 billion from fraud in 2005. (Up from $600 billion 2002.) PricewaterhouseCoopers found that since 2003, worldwide fraud losses have increased 50 percent. Their 2005 Global Economic Crime Study found that "since 2003, the number of companies reporting cases of corruption and bribery rose 71 percent; those reporting cases of money laundering were up 133 percent and reports of financial misrepresentation were up 140 percent."
  
  
• Corporate fraud goes beyond accounting chicanery; the federal government's contracting of services in Iraq and the Gulf Coast have been rife with fraud and abuse. Post-Katrina contracts, many of which were "awarded with limited or no competition," have been given to companies that are inflating prices. The inspectors general with the Departments of Homeland Security, Defense, and Army testified last month that the four companies contracted to remove debris had "subcontracted their work to multiple tiers of subcontractors, resulting in markups between 17% to 47%. Similar price hikes were found in other services, including the placing of blue covers on damaged houses and the installation of temporary housing trailers." House Committee on Government Reform ranking member Henry Waxman (D-CA) found Katrina contractors "double-billed the government for debris removal, overstated mileage claims to get extra fees and inflated prices by improperly mixing debris." In Iraq, federal investigators uncovered instances where "American contractors swindled hundreds of millions of dollars in Iraqi funds," effectively turning the country into a "free-fraud zone." The Justice Department is also after pharmaceutical giant Abbott Laboratories, accusing the company of “vastly inflating prices of its drugs as part of a fraudulent billing scheme alleged to have cost government health programs more than $175 million over 10 years."