Readers Report
Enron: What Ought to Be Done
Our ongoing "Enron Watch" and our Jan. 28 Special Report, "Accounting in crisis," prompted many reader letters on the implications for corporations, auditors, government, and investors, as well as a myriad of recommendations for reform.
A Victims' Fund
As I read your excellent coverage of Enron Corp.'s deceit, I can't help but see those responsible as domestic enemies. Their devastation of families is of a different order than the attack on New York, of course, but the consequences are dire nonetheless.
I would like to see Chairman Kenneth L. Lay, former CEO Jeffrey Skilling, former Chief Financial Officer Andrew Fastow, members of Enron's audit committee, top officials of Enron, and the partners at Arthur Andersen and Vinson & Elkins personally repay what they stole. I would like to see President George W. Bush, White House Economic Adviser Lawrence B. Lindsey, and Vice-President Dick Cheney speak as plainly and as forcefully about this domestic evil as they do about foreign terrorists. Enron's damage to individual lives, to the national well-being, to confidence in the economy and the stock market is criminal. Those responsible should pay for it.
I recommend a victims' fund. This time, it would not come from millions of citizens touched by tragedy, nor from a government too ready to bail out its cronies. It would come from the individual Republicans and Democrats whose campaigns were financed by Enron. It would come from the pockets of Lay, Skilling, Fastow, Andersen, and V&E. It would be reimbursed by the exact amounts of campaign contributions doled out so liberally for so many years. And it would be started by President Bush himself, with a contribution from his pocket--no spin allowed.
Let no tort lawyers get rich while the victims are further impoverished. Get the money directly and quickly to the victims and show the wider public that this naked indifference to American citizens "will not stand."
Linda M. Eklund
New York
Regulatory Fixes
Just like the banking industry, we need an independent group similar to the Office of the Comptroller of the Currency (placed under the Securities & Exchange Commission) to audit the auditors and management of publicly traded companies. The companies (not the accounting firms) should pay fees for the review as part of the cost to be a publicly traded company, [just as] banks pay fees to the OCC.
The good news is that you have already identified the person clearly capable of leading this new group--her name is Sherron S. Watkins.
Kathryn M. Borkgren
Lancaster, Pa.
Reform No.1: Bar Congress from tinkering with the accounting rules. Several years ago, the savings and loans had an accounting problem. The Accounting Principles Board required recognition of fees for sales of loan portfolios over the original life of the loan. They went to Congress and asked for legislation barring the APB's jurisdiction so they could count as current income the entire "fee" they received by discounting the loan portfolio sold to another S&L. The got their way. You know what happened.
Stephen D. Tanner, CPA
Morgantown, W.Va.
Another reform that would "re-establish the public trust" is to have the responsible corporate officers, directors, and outsider auditors placed in jail. We will not get meaningful reform in this country until these "blue-suited thugs" do time.
Steven Kallos
Villas, N.J.
Auditors should be assigned by and beholden to the SEC (and indirectly to shareholders), not the company under audit. Corporations would pay an annual "audit fee" to the SEC based on accounting complexity. The SEC would select auditors from a pool of talent to conduct "tough audits." A new auditor would be assigned each year. Audit committee "watchdogs" would be selected from a pool of qualified candidates [for two-year terms] to oversee the auditors. If an audit or "watchdog" missed a significant problem that led to an "Enron-like" meltdown, they should face penalties for incompetence.
R. Dellar
Chicago
Professional Credibility
The essay by Bruce Nussbaum, "Can you trust anybody anymore?" was the best description of the causes and potential consequences of the Enron debacle that I have read to date. The essay captured the essence of the scandal and the character and motivations of the major players. Bravo!
Michael Weisberg
Gainesville, Fla.
The big [accounting] firms control our professional organizations and shape policy and direction because of their great influence in terms of size and money. But all too frequently these days, their greed and influence disgrace all of us.
Andersen should be hung out to dry.
Robert P. Bozajian, CPA
Tarzana, Calif.
Nussbaum's comment--"In short, most certified public accountants feel little duty to the public at large"-- shows a great deal of ignorance as to what the peer review process means to the approximately 45,000 CPAs who are members of the American Institute of Certified Public Accountants and who are employed by Big Five firms and who have probably never audited a large public company. I have served for almost 15 years on my state's Peer Review Committee, and I am currently serving on the AICPA Peer Review Committee. Our process of having firms that perform audits undergo a peer review every three years does weed out firms who are not keeping up with accounting standards. Please don't disparage approximately 95% of a very trustworthy profession in one fell swoop.
Michael Solakian, CPA
Branford, Conn.
Why should any regulatory body demand oversight of certified public accountants or require the protections of the Glass-Steagall Act when they benefit from the immense dollars thrown at them to ignore such things, for what else is lobbying?
Alan E. Rosenfield
Scottsdale, Ariz.
Dangers of Self-Regulation
As an AICPA member, I recently received a letter from its chairman and its president stating that "the accounting profession has a successful 100-year tradition of self-regulation, which has contributed to the most respected financial reporting system in the world." Perhaps those green eyeshades have blinded our profession to the realities of the 21st century.
Stanley J. Brunman
Hillsdale, N.J.
Our federal government is irrelevant to the task of promoting integrity in accounting firms. We investors can do it ourselves. I have purged my portfolio of the stock of any company audited by Arthur Andersen. If other investors will do the same, the accounting profession will rediscover honesty.
Paul Doering
Rochester, N.Y.
One would expect that those who have the most to benefit from the free-market system would be the last detractors of market integrity. Unfortunately, the actions of the executives of Enron, Andersen, and other corporations before them show that the enemy strikes from within. Unless democratic and free-market societies strive to develop a market ethos among their members, the sorry tale of Enron and Andersen will be repeated many times in the future.
George J. Papaioannou
Hofstra University
Merrick, N.Y.
The Stock Market's Influence
One contributing factor to financial reporting problems at Enron and at other companies with overstated earnings is the heavy dependence on compensating management and board members with stock option grants. Grants of options usually avoid a charge to earnings when options are granted or exercised but provide a tax deduction on exercise--an accounting anomaly that distorts true operating expenses.
If management stock ownership is desirable--and I believe it is--then grant shares outright, make them part of the compensation package, and charge current earnings accordingly.
Kurt W. Reiss
King of Prussia, Pa.
You point out the subversive role of the "enormous pressures to produce earnings growth"--and to increase a company's stock price. The Undistributed Profits Tax of 1936 [was] one of the most useful post-1920s reforms. A new UPT would encourage more dividend payouts. That would help avoid stock market "booms" and subsequent crashes, help refocus corporate strategy from stock appreciation to productive investment, encourage more transparent and honest corporate accounting, reduce merger mania, help address the "bigness gives political access" problem, and bring back corporate dividends as a source of supplementary retirement income. Although the 1936 act made more wealthy income subject to regular tax rates, it reduced other corporate taxes.
John S. Atlee
Institute for Economic Analysis
Brattleboro, Vt.
Control of 401(k)s
In typical 401(k) plans, there is an appointed fiduciary, or board of trustees, or some governing body that in theory is solely and exclusively responsible to the members of the plan. The obvious failure at Enron points out an even larger consideration: Who controls all the other plans in the U.S.? Most plans are governed exclusively by corporate [appointees]. With $10 trillion in U.S. pension funds, we had all better be asking who is in control and whether they are truly representing our interests.
Richard L. Hannah
Middle Tennessee State University
Murfreesboro, Tenn.
Rethinking the Energy Plan
The Enron crisis has cast serious doubt on the validity and integrity of the Administration's energy plan. Lay was one of the principal architects of the plan. One can only speculate as to what his specific contributions were. It is essential that the Administration make public the details of how this plan was formulated and that a review of the plan and its underlying assumptions be conducted by an independent panel.
Lisa Buckles
Newbury, Ohio
The press has been making much of the fact that the Bush Administration in October, 2001, when Ken Lay supposedly asked for help, refused. Was this the right thing to do? By then, the "big boys" had already gotten their money by selling the stock that summer--the only people left to feel the brunt of the bankruptcy were the employees and other small investors. An Administration that cared about these people would have tried to right the wrong instead of washing its hands of the mess.
Lawrence R. Dworkin
Wallingford, Pa.
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