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"Arthur Anderson, as Enron's accounting firm from 1985 forward, was intimately involved in the company's strategy. As auditor, it was entrusted to make sure Enron's re-ports fairly represented the company's financial condition. But Anderson itself was potentially conflicted since it operated as in-side accountant, outside auditor and consultant to Enron, reaping tens of millions of dollars a year in fees."
And here we enter upon an unexplored area - the sociology of corporate capitalism of our day. Not only is it unexplored but preempted by the marginalist value theory that identifies a highly idealized market model with the economy. This not only excludes all other subsystems of our mixed economy as "externalities" - the public sector, the household economy, the ecology, and so forth - but assumes a perfectly self-balancing market.
OA this fairness and inevitability are assured by the assumption that all factors on it are of inconsequential size. Nothing that any of them does or leaves undone can influence price or anything else on the market. The derivatives marshalled to "manage risk" (and incidentally to keep debts and other awkward details `off balance sheet') are, more often than not, without serious basis. Their consoling higher mathematics are not only irrelevant but misleading. If it worked despite the clash between the premises of the theory and the reality around us, it would be a miracle, fit to be ascribed to a saint or heaven. But, of course, it hasn't worked.
Yet there are enough choruses of PhDs in the employ of both universities and brokerage houses to assure the public that it will. And boom markets achieved by some highly inventive and muscular interventions of Enron-like corporations relieve participants from worrying too much about the ethics involved. Such economic theory was as reassuring as a papal indulgence in medieval times.
Doing business according to the laws and even the rule book has immense advantages. Not least of which is an unburdened con-science, not having to remember your lies, and the risk of being caught, burned and shamed. There must be some powerful driving force - akin to a magnetic field - that causes such an outburst of mega-scams in high places. Undoubtedly it has something to do with the compulsion of maximising shareholder value which instantaneously capitalizes the achieved rate of growth, real or imagined and the rate of improvement of that rate of growth into the indefinite future, and incorporates that into the current market price. That puts CEOs under com pulsion to achieve exponential growth or a convincing semblance of it. Non-growth is not an option. And the quickest way of achieving ongoing growth is to merge, preferably with a minimum of legal tender changing hands. On a buoyant market, this is likely to increase the price of the shares of the merging companies, and provide the credit base for further acquisitions. Obviously the bonanza tends to spill over to the firm's accountants and auditors. They are likely to be in the big league themselves, listed on the stock market under growth compulsions not unlike those of their clients. Imperceptibly they tend to become of one flesh.
Let the WSJ survey take up tale: "Ties between Enron and Arthur Andersen, its auditors, became particularly close in 1993 when Enron hired the accounting firm to undertake its internal audit. While that made some Enron employees uneasy, they became even more troubled by the hiring of Andersen employees, among them Enron's chief accounting officer and the company's chief financial officer.
"Andersen's Houston office, which employs some 1,400 people out of the firm's total of 85,000 world-wide, was a sort of farm club for Enron. The Andersen employees wore Enron gold shirts and decorated their desks with Enron knick-knacks.
"The hiring between Andersen and Enron worked both ways. In 1993, when Andersen took over Enron's internal audit operation, 40 people moved from the company's payroll to Andersen. Also in the early 1990s Enron's Thomas Chambers, the energy trader's vice president of internal audit, left Enron to run the Andersen group assigned to Enron's internal audit."
Surely the various investigative panels that are springing up within governments and without, must not neglect these aspects. The sociology of Globalization and Deregulation must not be taken for granted. While the bubble was in ascent, the accepted economic theory and the proclaimed "inevitabilities" of Deregulation and Globalization extended a sweeping indulgence over all excesses. Morality was dismissed as a built-in service provided by "the market." The only concern of the CEOs of our huge corporations was to "maximize shareholder equity." Obviously the model is not working, when so many shareholders have been taken to the cleaners. Under these circumstances, any enquiry that does not take in Globalization and Deregulation and marginal utility price theory will be an evasion.
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