In the same vein recent Congressional testimony of Jeffrey Skilling, a former Enron CEO, has sparked open derision and dark suggestions of perjury charges. As Richard Breeden, a former SEC chairman, puts it: "That an accounting and disclosure issue would replace the war in Afghanistan on our TVs-it is just unbelievable." True, but then again such is the entertainment value of moral outrage.
Enron, of course, is the big tamale. Filing for Chapter 11 in early December of last year, Enron is the largest corporate collapse in history. $26 billion in market value wiped out. Allegations of dodgy accounting with special purpose partnerships taking $500 million in debt off the company's books. Arthur Andersen, Enron's accountants, professing blissful ignorance as to the dubious financial structures while billing their client $25 million in audit fees and $27 million in consulting fees in 2001. And then there is the shredding of allegedly incriminating documents one step ahead of SEC investigators. The only thing missing is sex.
But why the moral outrage, particularly with respect to the accountants? To use a wonderful expression from an English trial court, "even a moron in a hurry" could have foreseen the breakdown in the watchdog role of auditors that has dragged Arthur Andersen centre stage. The inherent danger of one firm providing both audit and other lucrative professional services to one client has been the subject of much debate. The question of multidisciplinary practices, i.e., law firms affiliated with accountancies, dominated the 1999 meeting of the ABA, which overwhelmingly rejected the concept.
The SEC now seems certain to harden its position. Tough proposals previously tabled in 2000 had been watered down as a result of fierce lobbying on the part of the accountants. But Enron has changed everything. It is now widely expected that the cross-selling of legal and consulting services to audit clients will be heavily restricted. How could it be otherwise?
In the U.K., the legal press, while acknowledging the damage caused by Enron, has editorialized that "it is far, far too early to write off (the legal ambitions) of the big five" accounting firms. How can this be?
I suggest our U.K. friends have both a deep appreciation of the transitory quality of moral outrage and a firm grip on the pragmatic nature of business affairs. As Niccolò Machiavelli wrote in The Prince in 1513, "there is nothing more difficult to execute, nor more dubious of success...than to introduce a new system of things: for he who introduces it has all those who profit from the old system as his enemies, and he has only lukewarm allies in all those who might profit from the new system." It is one thing to horsewhip the accountants. It is an entirely different matter to rein them in. Moral outrage aside, it ain't over yet.