Three members of both the business and political community said yesterday at Harvard University’s John F. Kennedy School of Government that the collapse of Enron was caused by a breakdown in the enforcement government regulations.
Featured speakers Robert Pozen, former vice chairman of Fidelity Investment, Mary Schapiro, president of the National Association of Securities Dealers Regulation, Inc., and Rep. Edward Markey (D-Mass.) were invited to debate the causes, effects and cures in a panel discussion.
“Enron created a regulatory blackhole,” Markey said.
Not only did the Federal Energy Regulation Committee waive the company, but the accounting requirements were waived, as were the financial requirements, Markey said. The Security Acts of 1933 and 1934 were supposed to mandate that companies be looked at, he continued. However, Enron was not investigated in the last five years, despite being the seventh largest corporation in the United States.
Markey said the agency also claimed its reason for overlooking Enron was it was simply too busy. In addition, there were a number of jurisdictional disputes amongst the regulatory agencies.
As a result, “Enron was creating the marketplace and playing the marketplace at the same time,” Markey said.
The effects of Enron, Schapiro proposed, were a decline in trust among the American people in relation to future investing and a restructured focus by Congress and the auditing committees toward eliminating various loopholes.
Pozen expressed a slightly different outlook on the effects of Enron, saying, “We’re more educated about the structural problem; and from a legal stance, we see more Congressional action.”
In order to prevent future problems, Schapiro suggested institutions be governed at the board level by people independent of the respective organizations. Furthermore, Schapiro said she wanted a law incorporated in the existing regulation laws that every accounting firm regulating a company must be a member of the company.
She added there should be peer evaluations on a regular basis. Finally, she called for heavy disciplinary action, such as fines and banning the addition of new clients for six months, as well as throwing negligent members out of membership.
“Without discipline,” Schapiro said, “none of this will work.”
Pozen, however, disagreed.
“The real question is, what can an audit company really do?” he asked. “I think the answer is not much.”
Pozen said the key is to get the auditor back to the auditing company.
“If the companies had an [auditory form] every five years, there would be more of an incentive for companies to shape up,” Pozen said.
Pozen concluded the American public will be wiser about their finances as a result of the ENRON scandal.
“People are more realistic and will hopefully take a look at what they’re investing in,” he said.
Schapiro, however, said, “It will take a serious effort by Congress and the business committee to gain the trust of the American people that it is safe to come back into the water.”
Markey urged the attendees to make a difference in the world.
“We should light the world,” he said. “There is an enduring challenge that the U.S. has to meet because we are special. Two of the four planes were aimed at the World Trade Center because it’s the symbol of capitalism. The other plane went to the Pentagon: the place that symbolizes U.S. ability to fight and aid other nations around the world. The fourth plane was aimed at our political system that supports human rights. We all have a responsibility to defend these institutions.”
Audience member Joshua Rubin, 28, a student at JFK, said he was a little disappointed because the speakers were in the political school on campus but discussed little on “how policy can prevent this kind of debacle in the future.”
“I wish I believed that something is going to change, but I don’t,” he said. “I don’t think the incentive is there for our elected officials to deal with this issue. Our elected officials will pay lip service and make minor changes, but the fundamental problem won’t change.”
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