It was supposed to be the scandal that changed everything, yet it taught us nothing.
A decade ago, as Enron slid toward bankruptcy, it seemed almost impossible that the seventh-largest company in America could wither so quickly.
Disbelief gave way to outrage. Thousands lost their jobs, and we vowed that, if nothing else, it wouldn’t happen again. Congress passed the Sarbanes-Oxley law to increase corporate accountability. And then, we moved on.
Enron, though, wasn’t to be forgotten so easily. One of the greatest business failures in American history turned out to be merely a preamble to the financial crisis, a far more spectacular catastrophe that took Enron’s fantasy of reward without risk to the global galactic level.
Sifting through the rubble of the mortgage meltdown revealed the skeletons of Enron. Wall Street bankers had copied the notorious off-books partnerships tested at the Houston company and used them to hide billions of their own derivatives liabilities from investors. They believed, as Enron executives did, that risk could be engineered to disappear.
After Enron, businesses decried Sarbanes-Oxley. Regulation had gone too far, they said. The law never has been implemented fully. Now, it has been eclipsed by Dodd-Frank, the latest response to the latest crisis, and it too is under fire from businesses for being too heavy-handed.
Enron’s collapse had its biggest impact on the accounting industry. It cast a bright light on the ineffectiveness of auditors and the conflict of interest that grew as firms bolstered their lucrative consulting businesses by piggybacking on audit work.
Enron’s auditor, Arthur Andersen, was driven out of business by a Justice Department indictment related to the Enron case. Three of the remaining four major accounting firms sold their consulting businesses and submitted to the Public Company Accounting Oversight Board, a regulator that would audit the auditors.
Yet as with most of the other Enron-spawned reforms, little has changed. The recent bankruptcy of the commodities trading firm MF Global shows that auditors are no better at warning investors about risky practices than they were in Enron’s day.
“At this point, the firms are back where they were,” said Francine McKenna, who worked at two of the Big Four and now writes the Accounting Watchdog blog for Forbes. “The auditors sort of got a reprieve. Not only did the heat go off of them, but with the economy going into the doldrums again, they sort of had free rein to re-establish their consulting arms. After a little bit of time, they realized nobody was watching.”
Across the country, professors, consultants and speakers have sifted through Enron’s ashes, pondering the corruption of corporate cultures, the role of greed in decision making and the effectiveness of regulation. Some still wallow in delusion and debate whether crimes were even committed at Enron.
But all of these discussions miss Enron’s greater lesson: our eagerness to forget.
Today, a decade removed from the pain of thousands filing onto Smith Street, boxes in arms, Enron exists as a shorthand for corruption. It’s the punch line of movies, the stuff of stage parody, a collective hyperbole.
Enron’s philosophy, such as it was, didn’t just destroy a company. Seven years later, it almost destroyed the entire economy. Now, as then, we choose to forget, we rationalize, we settle into comfortable arguments so we can move on.
What we haven’t done is learn.
Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at email@example.com. His blog is at http://blogs.chron.com/lorensteffy. Follow him on his Facebook fan page and on Twitter at twitter.com/lsteffy.