Chamber Misses Moral Of Enron Story

I've been up well past midnight this week reading Kurt Eichenwald's riveting account of the destruction of Enron Corp. "Conspiracy of Fools" is well-written and exhaustively researched, and Eichenwald is wise enough to have let this complex story of greed, fear, incompetence and complacency tell itself rather than force his own conclusions.

What comes through in Eichenwald's narrative is how fragile institutions are and how susceptible they are to being corrupted by a series of small and seemingly innocuous decisions by individuals whose motivations are, in many respects, no different than yours or mine. At dozens of key points along the way, all it would have taken is one executive or auditor or lawyer or director willing to risk his job or bonus or disapprobation of his peers to stop the escalating fraud. And even if you don't completely buy the idea that Ken Lay was largely clueless (which I do) or that Jeff Skilling's offense was willful ignorance (which I don't), you can't help but come away from Eichenwald's story with a new appreciation for how people in an organization rationalize things they would recognize as wrong or stupid in another setting.

That wisdom, however, has never made it to the U.S. Chamber of Commerce, which more than three years after Enron's fall is still waging a rear-guard action against government regulators determined not to let it happen again.

Perhaps the most obvious lesson from the Enron story was the glaring lack of the internal controls that might have made the precariousness of Enron's finances obvious to directors and outside auditors. And yet, chamber officials huddled yesterday to plan their assault on regulations requiring companies to implement and test those controls. Based largely on the kind of anecdotal evidence picked up in country-club locker rooms, the chamber says the regulations have wasted corporate time and cash flow, discouraged risk taking, triggered mass resignations of corporate directors and dissuaded untold numbers of companies from going public.

The day before, the chamber was busy filing a brief in a criminal case on behalf of a Merrill Lynch executive convicted of conspiring with Enron executives to finance transactions, involving electric generators on barges in Nigeria, the real purpose of which was to manipulate earnings. The chamber's logic is that the executive should get a light sentence because the sham accounting didn't really hurt investors because Enron had already gone bankrupt by the time it all came out. That is an absurd argument that conveniently ignores that the reason Enron went under was that investors and creditors distrusted its accounting.

Given the billions of dollars that chamber members have invested in mutual funds for their employees' retirement accounts, you'd think the chamber would be furious with an industry that routinely cheated them at the expense of Wall Street fat cats doing after-hours trading. But the chamber is in court seeking to overturn new SEC rules requiring that the chairmen and a majority of directors on mutual fund boards be independent of fund managers. Even worse, chamber President Tom Donohue has been running around the country questioning the motives and judgment of the New York state attorney general who exposed the industry-wide practice -- the same official who exposed the corruption of Wall Street analysts and bid-rigging by insurance brokers.

Donohue and the chamber are also poised to challenge the SEC should it move ahead with a rule permitting a majority of shareholders to nominate an alternative slate of directors for the companies they own.

From the moment Enron collapsed, Tom Donohue and "business leaders" have misunderstood the corporate scandals. To them, it has always been a matter of a few bad apples -- a problem more of perception than reality that could be fixed without really reducing profits, increasing accountability, changing the corporate culture or altering the balance of corporate power. As "Conspiracy of Fools" reveals, they were wrong then and they are wrong now.

Steven Pearlstein will host an online discussion at 11 a.m. today at washingtonpost.com. He can be reached at pearlsteins@washpost.com.