LONDON, 4 February — Imagine an auditing firm auditing the books of a company. The job of the auditor we are always told is to express an opinion on the state of the finances of that company according to the information disclosed and provided. Imagine that same firm advising the same company on other aspects of the business through lucrative consultancy contracts. Very often the value of the consultancy contracts are higher than the auditing work carried out on the company.
It doesn’t take a genius to work out that not only is there a potential conflict of interest, but also the potential for huge irregularities and oversight.
Yet this practice has been the norm in international corporate culture for decades, and the most disturbing aspect is that the relationship has not been only between auditor-cum-consultancy and business, but also between auditor-cum-consultancy and governments. Yes, the US, UK and a host of other industrialized governments.
The spectacular collapse of US energy giant Enron Corporation and its cosy relationship with its auditor-cum-consultancy Arthur Anderson, highlights yet again another manifestation of what Edward Heath, the former British prime minister, once called "the unacceptable face of capitalism".
Enron has filed for Chapter 11 bankruptcy and is under investigation by both Congress and other watchdogs, some of whom are trying to force the Bush administration especially Vice President Dick Cheney to disclose the contents of meetings with senior Enron executives to try to ascertain whether they exerted any influence over the administration’s controversial allegedly pro-business and anti-environment energy policy.
The Bush administration is seeking to hide behind the mask of executive privilege. Private conversations of the executive must remain so, it argues, otherwise it would be impossible to formulate and conduct government policy if you had everyone else in on the act. What the watchdogs are keen to find, they stress, is whether any undue influence was exerted by Enron on the Bush energy policy and who stood to benefit most from such a policy. For an administration which has so emphatically gone on the high moral offensive in its fight against international terrorism, the morality of America’s corporate culture and political governance seems to be of little relevance.
Civilized behavior, it seems flies out through the window when it comes to corporate governance. And yet, this is the very regime that is spearheading the global fight against money laundering by drug barons and terrorists. Anyone with an Arabic-sounding name who wishes to open a bank account, or transfer large sums of money, or has a thriving bank account, since Sept. 11, it seems, are assumed to be potential money launders for terrorists and must be "guilty until proven innocent". One wonders why?
It is no secret that the Bush family has sizable business interests in the oil and energy sectors. Companies in both sectors, including Enron, were heavy contributors to the Bush presidency campaign.
Had it not been for the serious allegedly criminal negligence and mismanagement that was pervasive in Enron, which resulted in the alleged manipulation of Enron stocks through insider dealing and through off balance sheet activities, and which has seen thousands of innocent loyal Enron employees losing their hard-earned life savings, one cannot help feel that Richard Lay and his fellow executives might have gotten away with it.
For these hapless employees, Enron may be perceived as the corporate equivalent of the Al-Qaeda, and its actions are that of corporate terrorism. After all, Enron’s tentacles crossed the Atlantic — they even contributed to the party coffers of the Labour and Conservative Parties in the UK, where a senior former Conservative Cabinet minister and Enron UK non-executive director, Lord Wakeham has already resigned as chairman of the Press Complaints Council is cited in the US lawsuit against Enron executives.
How ironic, that the World Economic Forum which moved its annual summit from its home in Davos in Switzerland to New York out of respect to the victims of Sept. 11, should last year have constituted a permanent committee on business and ethics. At its summit at the Waldorf Astoria in New York this past weekend, the question of bringing ethics into business could not have been more timely.
The Enron scandal unfortunately has not unfolded completely. Perhaps we will never know the full extent of the corruption and criminal negligence, and its relationships with governments and auditors-cum-consultancies. Already one senior former executive has committed suicide. The lessons are now being paraded and while some regulators will act quickly, others will have to be dragged screaming and kicking into reform.
More fundamentally, the Enron scandal also raises the question of party funding in so-called Western democracies. Corporates like any other major donors expect something in return for their party donations. How politicians can say that they can never be influenced by this is scandalous. The fact that electorates allow them to get away with this is an even greater scandal. It reflects either a disturbing complacency; a sense of futility; or to what extent the culture of greed has infected Western political culture.
Of course there are huge lessons to learn in the arena of accounting and auditing practices, but this is for another occasion. To their credit, Unilever and CGNU, the UK’s largest life assure, have announced that they are banning their auditors from doing consultancy work for them, as fears about accountants and auditors independence spread around the global corporate world.
As for the Bush administration, it might be wise to heed the lessons of history. Never assume the high moral ground especially when your own house is not in order.