Jewish World Review Jan. 10, 2002/ 26 Teves, 5762

Marianne M. Jennings

Marianne M. Jennings
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Ethically challenged firms -- ARIZONA does copper, cotton, tourism and failed financial firms really well. Arizona was home to the fallen Mera Bank, Lincoln Savings & Loan, Charles Keatings' work, and now Finova, the financial firm that became the eighth largest bankruptcy in the history of the United States and served up the largest bond default since the Great Depression. Thank goodness that Enron, now the country's largest bankruptcy ever, was based in Texas.

Speaking from here at the epicenter of large business failures, I can tell you that the commentary and analysis on Enron are not promising. What might help is if those in business would state unequivocally that the conduct of the managers in these firms was wrong. Instead, the Wall Street Journal is serving up editorial pieces such as "What Enron Did Right." I'm fuzzy on why we would care and what fool would copy it.

Still another from the Wall Street Journal called, "Enron: A Wake-Up Call," was written by the CEO of Anderson, the outside auditors for Enron. His firm pressed "Snooze" for at least the last 3 years and is now ready to rise and shine with the nerve to act surprised. Finally, this gem: "Enron May be Dead but the New Economy Isn't."

The new economy may not be dead, but it is on life support because loss of trust in business is fatal. There have always been bad people in business, but their bad behavior wasn't ignored or rationalized. The solution for these failures is not more regulation or better auditors. Granted, the outside auditors for all of these companies have been pitiful, if not complicit, and there has been increasing regulation since the days of Charles Keating and the merry band of savings and loans, yet we still have Ponzi schemes, failures, and prison terms. Some common sense could go a long way.

For example, these companies and their managers, similar to the now dead dot-coms, assured everyone that they could make more money because they were new, different, and better. There isn't much new under the business sun.

There is quality, hard work and low costs. Those who say otherwise court disaster. When business reporters tried to crack through this baloney of "new and different," they were too easily satisfied with glib explanations by these hotshots and too intimidated to explore further.

For a time, these companies do manage to wow. Employees are treated well with workout rooms in opulent headquarters. But "creative" accounting soon kicks in because it isn't possible to continue odds-defying performance for the long term. Enron used "Mark to Market" accounting (translation: we haven't earned the money yet, but we're booking it anyway). Finova postponed bad loan write-offs. And dangling large carrots, such as annual bonuses and stock options, before managers is the kind of temptation that finds them doing whatever it takes to make their numbers.

Debt is not all it's cracked up to be, but these companies lived and died by it. Any sniffle in the economy was devastating. Southwest Airlines emerged from the September 11 crisis with an announcement of expansion as other airlines asked for a federal bailout. Southwest has the lowest in the airline industry. Greed is not good and debt is really bad.

These companies also had the curse that plagued the Clinton White House: there were no adults in charge. The brains behind Enron's finances was a Northwestern MBA in his mid-30s. Charles Keating had an executive team a full generation younger, some being sons-in-law. The longer Finova concealed the accounting tricks, the lower the ages of its managers. Seasoned executives dropped from the officer roster.

Finally, these companies fell victim to "rules creep." Rules creep afflicts those with strong values. Their strong values are, however, limited to things such as diversity and philanthropic giving. Sam Eichenfield, former CEO of Finova, was honored as "Phoenician of the Year" for his generosity. Houston mourns its own Enron because of the resulting loss of donations. Charles Keating let Mother Teresa use his jet.

These surface social responsibilities are penance for what's really going on in their companies. They are comfortable with dishonesty because they are good corporate citizens. With a diverse work force and support for the ballet, how could fraud matter?

Enron, Finova, Lincoln and others represent the worst kind of business failure - that for which there is no excuse. It was not their marketing or their business ideas that failed. They failed in their ethics. Yet they are defended by rationalizers and apologists who ignore the deceit and will not say, "This was wrong." Other utilities and energy firms are using Enron accounting even as I write. Young hotshots are assuring auditors all is well with bad loans. Books are cooking as bonuses are paid. Speaking from ground zero, will they ever learn?

JWR contributor Marianne M. Jennings is a professor of legal and ethical studies at Arizona State University. Send your comments by clicking here.


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© 2002, Marianne M. Jennings