NCPA - National Center for Policy Analysis

What the Enron Scandal is About

February 25, 2002

After weeks of fruitlessly trying to make Enron into a Watergate-style political scandal, the press has finally realized that the Enron mess raises important questions about corporate governance, accounting standards, transparency and other issues critical to all businesses.

The Washington Post's E.J. Dionne correctly recognizes that the true conflict in business today is not between owners and workers, but between insiders and outsiders. Managers, on the inside, appear to have manipulated the system for their own enrichment, at the expense of outsiders, including both workers and shareholders.

A front-page news story in the New York Times by Leslie Wayne indicated congressional investigators are moving away from a narrowly-focused probe of Enron political donations to a broader inquiry of accounting and financial practices. Wall Street is terribly worried there are other Enrons out there. It is important to find out if that is true and do something about it before another major company implodes.

Finally, an excellent series of articles in London's Financial Times correctly views Enron as a failure of existing checks and balances. Part of this breakdown is related to globalization.

With all major companies increasingly global and multinational, it is too easy for them to shop for the most favorable tax and regulatory climate. One of the factors leading to Enron's downfall was its offshore financial dealings in small Caribbean nations, out of sight of shareholders, auditors, financial analysts and government regulators.

Thus the Financial Times notes that reforms arising from the Enron wreckage need to be worldwide in scope. At the same time, governments need to resist the temptation to adopt tighter, more detailed regulations.

These insights stand in stark contrast to the shallow focus on campaign contributions that has been the main attention of Enron press coverage thus far.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 25, 2002.


Browse more articles on Government Issues