One Year "Anniversary" of Enron Scandal

Enron filed for protection under US bankruptcy laws exactly one year ago. Its collapse proved to be the first in a succession of corporate scandals, and an ethical deficit has been revealed at the heart of modern capitalism, said The Financial Times yesterday.

Arthur Anderson, P.C., an accounting firm that has been found guilty for its negligence of overseeing Enron, is serving business schools as a key source of the case study. People have begun to realize the virtue of the moral CEO. WorldCom, which has filed for the bankruptcy protection under Chapter 11, provides us a good example. It is courting former New York major Rudolph W. Giuliani, who has become a national hero after the Sep. 11th attack.

The Financial Times explained that keeping corporate ethics pays off since it cuts down the relevant costs for inspection and transaction. University of Indiana conducted a research in which 103 countries around the world were compared. According to the research, the better system a corporation has against insider`s transaction, the less cost it has to pay for issuing stock. In addition, McKenzie Consulting Group, a US consulting firm, reports that investors value companies with the well-organized commanding system, and are likely to invest more money in them.

▽ What is left to do = The Bush administration promised in July that it would root out all corporate misconduct. As part of that effort, President Bush signed into law the Sarbanes-Oxley Act of 2002. But it has not reaped in much so far, said The Economist on Nov. 28th. Under the new law, the Corporate Accounting Overseeing Board was established, and William Webster was sworn in as the head of it. Webster, however, resigned in three weeks from taking office in connection with a corporate scandal. In addition, Harvey Pitt, former head of the Securities Exchange Commission, also resigned for it. Therefore, two arms of the Bush administration against corporate scandals have become unusable. The Economist also pointed out that US corporations should start distinguishing CEOs and chairpersons. A CEO is in charge of the management of a company, while a chairperson operates the board of directors. Therefore, it pointed out, if the two are considered identical, the self-regulation and monitoring are hard to be achieved.

▽ Snowballing bankruptcy fees = Lawyers and restructuring specialists are still struggling to sort out the energy company`s complex bankruptcy, filed a year ago on Monday. But creditors are increasingly concerned about the mounting cost of the case, with some complaining that professional fees are running at $1m or more a day and eroding the value of the assets.

Weil Gotshal & Manges, Enron`s lead law firm, estimated in September that bankruptcy- related fees would total $306m in the 13 months from the Chapter 11 filing to the end of this year, and would account for 40 per cent of Enron`s total corporate overheads in the period.

In the end, the bankruptcy court has begun its efforts to cut down on the burgeoning costs. The "fees committee" set up in April has found that the fees and expenses claims of lawyers, consultants and accountants contained billing inaccuracies and inadequacies. In its first reports to the court, the committee recommended to the judge overseeing the Enron bankruptcy, that $2.65m - or 4.5 per cent - should be docked from the original $58m of claims made by 10 law firms and consultancies in the first four months of the case. It identified duplication of work, questionable research and inaccurate timekeeping among points of concern.

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