Toward "Economic Democracy"

Article excerpt

Gordon L. Anderson is executive director of Paragon House Publishers and secretary-general of the Professors World Peace Academy. Among his many publications are the books Morality and Religion in Liberal Democratic Societies and The Family in Global Transition.

In the fall of 2001, the United States suffered two catastrophes, both stemming from social failures. On September 11, the attack on the World Trade Center was, in part, a judgment on the inconsistencies of American foreign policy and the hedonism and moral relativism exported by its culture. On October 2001, just one month later, corporate scandals had reached a magnitude which signaled a moral failure of the economic system of the United States.

On October 16, Enron released third-quarter earnings, writing off $1.01 billion in expenses, including $35 million related to investment partnerships formerly headed by Andrew Fastow, Enron's chief financial officer. In November, Enron was forced to restate its earnings, and disclosed a stunning $618 million loss for the third quarter. Enron employees, many whose retirement funds were made up nearly exclusively of Enron stock, lost all of their investments while Enron executives like Fastow squirreled away millions of dollars in offshore bank accounts.

In January 2002, we learned that just four days before Enron released that earnings report, workers who audited the company's books for Arthur Andersen, a large accounting firm, received an extraordinary instruction from one of the company's lawyers. An October 12, 2001, memo directed workers to destroy all audit material, except for the most basic "work papers." On October 19, Enron notified Andersen that the Securities and Exchange Commission (SEC) had begun an inquiry into its financial dealings. The next morning, Andersen officials convened a high-level meeting at which it was decided to gather Enron-related documents and, two days later, the "wholesale destruction" of truckloads of documents began, and continued until November 8, when Andersen was served with an SEC subpoena.

Andersen, one of the world's largest accounting firms charged with keeping corporations fiscally honest, with 85,000 employees in 84 countries, approved and falsified Enron financial statements concealing almost $20 billion of debt from stock- and bond holders, regulatory agencies, and Enron employees. Enron was reportedly Arthur Andersen's second-largest account--earning the company some $52 million in 2001 alone. Just ten years ago, Andersen was regarded as the most conservative and elite of the top accounting firms.

When queried about their activities, Andersen executives maintained that they "did nothing illegal." Indeed, they helped write the laws that governed their activity. The chairman of the SEC, Harvey Pitt, and the head of the congressional investigative arm, the General Accounting Office (GAO), David Walker, had come to their government positions after working for Arthur Andersen.

Enron Chairman Kenneth Lay earned his MBA degree from Harvard University. He and other corporate executives involved in similar scandals in the United States, in England, Germany, and elsewhere repeatedly used the refrain, "We did nothing illegal." They did not talk about whether what they did was "right," or whether they were sorry for those whose livelihoods or retirement accounts were destroyed. They did not admit to stealing.

In July 2002, in an attempt to rescue the already beleaguered U.S. economy, Congress enacted the Sarbanes-Oxley Act, which strengthened auditing and accounting procedures, created rules that hold corporate executives more accountable, and increased criminal penalties for wrongdoing. However, this act fails to address the fundamental conflict of interest: Accounting firms are paid by the corporations they audit and therefore have a vested interest in their success.1 They cannot be neutral. They cannot bite the hand that feeds them. …