"There are two things you should never watch being made: laws and sausages." —Otto von Bismarck
Ever since the Enron scandal broke, members of both houses of Congress have been tripping over their subcommittees to start writing laws for the accounting profession and the financial services industry to ostensibly ensure such a debacle never happens again.
To hear them tell it, they just discovered that something’s rotten in the state of Denmark, and want nothing more than to punish the scoundrels who perpetrated the dirty deed.
As more than one investigative news story has pointed out by now, however, some of these very same politicians fought fiercely just a few years ago to thwart any efforts at accounting industry reform.
"(Enron) is about corporate greed," former SEC chairman Arthur Levitt told the New Yorker in an illuminating article in its April 22-29 issue. "It is the result of two decades of erosion of business ethics. It was the ultimate nexus of business and politics. If there was ever an example where money and lobbying damaged the public interest, this was clearly it."
The Center for Responsive Politics noted that between 1989 and 2001 accounting firms spent nearly $39 million on political contributions – which reached more than half of the current members of Congress and 94 of the 100 senators.
Now while pundits can argue about whether or not the receipt of political contributions is a deciding factor in how politicians go about the business they were hired to do – making laws and watching out for the best interests of their constituents – the truth of the matter is that Levitt tried mightily to push through measures to hold accountants more accountable in the late 1990s, but the powerful accounting lobby, and the politicians who took its money, stymied his efforts at every turn.
One former accounting industry lobbyist even admitted that in 2000 he rounded up a group of politicians who were willing to attach a rider to an appropriations bill to cut SEC funding unless Levitt backed off.
Fast forward to April 2002. Today you won’t find a senator, congressman or congresswoman who isn’t in favor (at least publicly) of reining in the accountants and revolutionizing the way they are allowed to do business. Thus, the myriad of bills being squeezed into sausages that may one day become laws.
But don’t count the accounting lobby out too soon. A House bill that passed last week pretty much passes the buck on accounting industry oversight to the SEC, which has already said it’s ill-equipped for that role (and since it’s now run by former accounting industry lawyer Harvey Pitt, questions abound at how much reform would really take place under his leadership anyway).
It’s no big stretch to imagine that the millions spent by the industry’s lobby helped grease that bill, and a new Senate measure that lengthens the time investors have to file securities fraud suits while also increasing the penalties for destroying subpoenaed information doesn’t seem too revolutionary, either.
So in the end, after Enron has receded from the front pages and Andersen slowly fades into obscurity, it may be back to business as usual for the accounting industry. Which would be a shame. A shame for investors who deserve better overseers of public companies, and a shame on an industry that’s too arrogant and powerful to admit it sorely needs to change.
