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Dr. Robert Howell,
Professor of Business Administration, Tuck
School of Business at Dartmouth, led a
discussion with the members of CEO
Roundtable on the lessons learned from the
Enron debacle.
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Dr. Robert Howell,
Professor of
Business
Administration, Tuck
School of Business
at Dartmouth, led a
discussion with the
members of CEO
Roundtable on the
lessons learned from
the Enron debacle.
Dr. Howell has a
unique perspective
and insight into
this case of
corporate greed and
cheating. A former
student of his first
reported the Enron
story in Fortune
magazine and he
knows about the
efforts of Enron
executives to
prevent the story
from being
published.
Dr. Howell went
beyond the headlines
in his discussion
with the CEOs to
explore important
issues:
- Is the Enron
situation an
exception or an
indication of
more general
problems?
- Should the
problems at
Enron have been
discovered
earlier? By who?
- What can be
done to prevent
or reduce such
misbehavior by
corporations in
the future?
Some of the
conclusions of the
discussion were:
- Enron is not
a unique
example, nor the
most grievous.
Other, better
known and larger
companies cost
their
shareholders
much more in
lost value
during the same
period,
including Cisco,
Xerox and Lucent
Technologies.
Nor was Enron
alone in using
"overly
aggressive" and
fraudulent
accounting
practices.
Financial
reporting
practices,
policies and
standards have
become
hopelessly
complex and no
longer reflect
business
reality. This
complexity
encourages the
greedy and those
who live off the
greedy to commit
crimes and hide.
- The problems
at Enron should
have and could
have been
discovered much
earlier by many.
"Enron was
really a
systematic
failure of all
the checks and
balances we have
on corporate
governance:
integrity of
management,
board of
directors, audit
committee of the
board, outside
auditing firm,
Wall Street
analysts, and
ultimately the
press. All of us
failed." Steve
Shepard, Editor
in Chief,
Business Week.
Dr. Howell used
publicly
available
numbers from
Enron to show
that the warning
lights should
have been
flashing in
every investment
analyst's office
even if Andersen
Accounting was
acting in
collusion with
Enron
management. The
reported revenue
growth did not
stand up to
simple financial
analysis.
- Reforms will
be driven by the
Enron case and
others:
- Public
oversight of
the Audit
profession
- Faster,
less
political
rule making
process
- Broader,
rather than
narrower,
statements
-
Separation
of auditing
and
consulting
-
Disclosure
of
audit-client
relationships
Even
with these reforms
we are not confident
that much will
change. Too many
groups and
professions benefit
from the
opportunities
inherent in the
complexity of the
current accounting
and financial
reporting practices.
Current financial
reporting practices
do not reflect the
reality of how
business operates in
the new environment.
For example,
intangible assets
are more important
than tangible assets
in most industries
today, but are not
accounted for in
financial
statements. Dr.
Barrie Greiff, the
retreat leader,
commented that
mental health
professionals have a
term for the current
situation, "mutual
madness." When
everyone is gaining
from sick behavior
no one will change.
Dr. Howell has
written extensively
on the need to
radically change our
accounting practices
and standards. He
can be reached at
Robert.A.Howell@dartmouth.edu. |
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