A "Post-Enron" Business World

Boatright, John. Ethics for a Post-Enron America. Anuual Editions: Business Ethics. Mcgraw-Hill Higher Education. p 186-190.

This article speaks of the fiduciary duties that employees and managers in any business have to fulfill to serve the interest of others, such as shareholders and the public. Many top executives in business are manipulating financial statements, accountants are approving statements that prove to be false, and investment bankers are helping executives develop complex financial transactions to show great earnings, or hide debts. All these people are supposed to be trying to provide a clear and accurate picture of the businesses earnings or debts; all the while they are editing this picture to make it look its best. After some of the recent scandals, such as Enron, WorldCom, Global Crossing, and Tyco, the government made provisions to the Sarbanes-Oxley bill including requiring auditors have no ties whatsoever to management, and accounting firms doing the auditing refrain from performing any nonauditing services for businesses that could come to bias an audit. The challenges that we face today in our "Post-Enron" business world is to determine which forms of regulation can best secure the kind of ethical environment in which future scandals such as those names previously will not occur. To determine how to decide this, author John Boatright takes at look at what went wrong. A major factor in these scandals was the need to raise stock price quickly. Many companies tied an executive’s work to the stock price, by letting them purchase stock at a cheaper price. Instead of aligning the executives' interests with that of the stockholders, this just caused the executives to become more aggressive with keeping the stock price high, and rising fast. Another important factor was that most of these markets that the companies listed above were involved in were deregulated. Enron was an energy trading company, and WorldCom was a telecommunications company. Certain regulations on where contracts should be located on the balance sheet were never put into place, which almost allowed for these scandals to happen. Without the help of accountants and investment banks, executives would never have been able to pull off the recent scandals. As of the 90's the legal liability of accountant and investment banks was reduced. As of 1994, accounting firms and investment banks could not be held liable for "aiding and abetting" fraud in securities transactions. Further, these accounting firms found that is was far more lucrative to sell consulting services to their clients, which caused them to go easier on audits for not to loose the consulting business. And, for the investment bankers, they made far more money doing deals with large companies than by servicing individual brokerage clients. Boatright makes a good point when he begins talking about the American business system as a whole. He says, “The American business system is schizophrenic in that it combines a market system built on the pursuit of self-interest with a system of fiduciary duties, in which one party is pledged to serve the interest of another." So what options do we have to keep the top executives, accountants, and investment bankers in check? Should we pass more and more laws? If so, I believe these businesses will find a way to get around the laws, just as they have before. The challenge we face is deciding whether to strengthen these duties, align the interests of the stockholders with the top executives, create more regulations, or find other means of protecting against these kinds of scandals.