Readers Report
The Enron Fiasco: So Many Lessons
The failure of Enron ("The fall of Enron," Cover Story, Dec. 17) is every bit a failure of the U.S. financial community, which supported the growth story of the company with loan commitments, favorable research reports, and leaky accounting practices. In all cases like this, the enthusiasm for big gains outweighs the need to provide fundamentals.
If discipline were enforced at early stages, Enron Corp.'s fall would have been from a much lower level of credit and market value, perhaps to the extent of not deserving your cover space.
Gary Walther
Winnetka, Ill.
"The fall of Enron" provided real insight. Having once been described in the press as a guru, I sympathize with the four experts you quote in the panel "Everyone loved Enron." The issue is not that none of them could have predicted Enron's demise but that they had all praised Enron at a specific point in time under specific market conditions without the aid of due diligence.
Just as climate change made the most successful predator on this planet--the Tyrannosaurus Rex--extinct, a change in the business climate made Enron extinct. New models have been suggested that allow a more accurate prediction of the inevitable changes in the business climate, and these would have helped Enron.
It is not skillful to predict success or failure; it is skillful to know when the risk of both is at its peak.
Gerald Michaluk
Glasgow
Enron had estimated that the electronic market for bandwidth would reach $450 billion by 2002, a value comparable to many established markets. Analysts and scholars doubted the model initially, but soon suppressed their doubts. Enron's supporters claimed that only a fool could reject such an opportunity given economic theory stating that big markets emerge spontaneously.
The moral of Enron's story is that carefully orchestrated hype can lead to suppression of counter opinions, to self-serving market forecasts, and ultimately to loss of shareholder value.
Rado Kotorov
New York
One way to analyze unexpected corporate failures is to ask: Did management tell us about the risks? Another is to ask: Did the audit committee and the outside auditors understand the company and its risks and ensure the financial reports clearly explained such risks? The Securities & Exchange Commission and others have pointed to the audit committee and the auditors to protect the interests of the investing public. Cases such as Enron may promote further efforts to enhance the oversight of companies' financial reporting processes.
Dana R. Hermanson
Kennesaw, Ga.
How ironic for those of us in middle management that in a culture famous for a brutal ranking process, designed to extract maximum performance from the general workforce, senior management was unable to make hard choices about spending and investment decisions. Simply claiming that an industry was ripe for the "Enron Way" was enough to obtain a blank check from management. Hiding the extent of this activity off the balance sheet simply proves that many executives weren't the masters of the business world they supposed themselves to be, but were simply out of their depth.
Stephen Schwarz
Houston
BusinessWeek's article was very enlightening, except it lacked the suggestion that Enron's top executives might have been emboldened in their questionable (and timely) disposition of their Enron stock by their strong political ties. They must have been pretty sure the SEC wouldn't come after them.
James E. Patterson
St. Louis
If there is any justice in the world, Jeffrey Skilling and his cronies will be held accountable for their malfeasance, their assets will be seized, and they'll be thrown in jail where they belong. I'm not naive enough to think that will actually happen, though. Quite the contrary, I'm sure it's only a matter of time before they're all back within the ranks of highly paid corporate executives.
Oh, and one more thing--BusinessWeek and others in the business and financial press are not without some responsibility in this sordid affair.
Joseph Moran
Somerset, N.J.
In your Feb. 12, 2001, cover story ("Power broker"), Skilling is quoted as saying, "I've never not been successful in business or work, ever." Oops!
Usamah Zagaar
Houston
How to Cut the Cozy Ties That Helped Bring Down Enron
Your editorial, "Enron: Let us count the culprits" (Dec. 17), completely missed the mark. The accuracy and adequacy of Enron's external financial statements is primarily the responsibility of the management of Enron, not that of the external auditors. Collusive behavior from senior executives, purposely intended to deceive auditors and third-party users of financial information, cannot be regulated out of existence with the passing of new accounting rules or the stroke of a pen.
We must reinstate the historical relationship of the finance organization of the corporation scrutinizing the operations branch of the company: Eliminate the present practice of having the CFO report to the CEO and restrict CFOs and other high-level finance officers from being paid bonuses based on the company's quarterly or annual results. I also propose that any company requiring an SEC audit must change auditors every three years, and retain the same auditor but once every nine years. That way, there would be at least three separate auditors of a company's financial statements during a rotation.
Gregg M. Stieber, CPA
Sammamish, Wash.
Excite@Home and AT&T's Common Problem: Armstrong
Now, let me understand. The company had a flawed acquisition strategy. It had unrealistic, grandiose plans; it overpaid for acquisitions. It would not raise prices to provide much-needed revenue. It has to sell off acquired assets for less than it paid for them. And, ultimately, employees and shareholders are being stabbed in the back ("Excite@Home: A saga of tears, greed, and ego," Information Technology, Dec. 17). Are you talking about Excite@Home or AT&T? Maybe both companies have the same core problem: C. Michael Armstrong.
Armstrong's expensive broadband/last mile strategy for AT&T was unrealistic from the start. Had he instead used that money to create the ultimate wireless company--prices as low as land-based telecom, unrivaled reception, and a wireless phone in every hand--he might not be tearing AT&T apart today. You know, Mr. Armstrong, Bill Gates did pretty well with his concept of a PC in every home, and "air" can be that last mile.
Richard DeLio
Ramsey, N.J.
The FDA Does Review Those Drug Ads
Your editorial "How to control drug costs, simply" (Dec. 10) suggests that the Food & Drug Administration should crack down on "misleading" ads. The writer apparently is unaware that, despite a lack of statutory authority (and, in fact, a specific legislative prohibition), the FDA already does review virtually all consumer ads in advance on a "voluntary" basis on the part of industry advertisers. By law, all such advertisements must be submitted to the FDA after they have aired or been printed. FDA research on consumer advertising suggests a benefit to patients.
Jack E. Angel
Coalition for Healthcare Communication
Greenwich, Conn.
|
Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
Printer-Friendly Version
