ENRON'S ENABLERS DIRECTORS FAILED TO ASK RIGHT QUESTIONS.

Byline: Arnold Steinberg Local View

SHORT sellers are speculators who sell stock they don't own. They borrow the shares from their broker to make delivery. When the price declines, these speculators then buy the stock at a profit.

The short sellers of Enron stock tipped Bethany McLean, a Fortune magazine writer. Study Enron's annual filing with the Securities and Exchange Commission, they told her.

In fact, such 10-K corporate filings are available to anyone. The more McLean learned about Enron, the more skeptical she became. She could not explain the company's geometric explosion of debt. Neither could Enron executives she quizzed.

Indeed, Enron's Chairman Ken Lay and then-CEO Jeffrey Skilling complained to McLean's boss about her tough questions.

Over six years, Fortune magazine had named Enron as America's most innovative firm. No wonder Enron's chief financial officer flew to New York to reassure Fortune's managing editor. Enron was stable, he said.

Still, Fortune had enough integrity and good sense to run McLean's article. That was nearly a year ago.

``The company remains largely impenetrable to outsiders,'' she wrote. ``How exactly does Enron makes its money?''

She concluded that Enron's insufficient details amounted to a ``red flag'' that could lead to, well, a ``nasty surprise.''

McLean lamented that ``analysts don't seem to have a clue.''

Which brings us to this question: Who should have a clue?

Should directors have a clue?

Corporations should have outside, independent directors who have the will and the time to do their job. But, all too often, incestuous relationships trump fiduciary responsibility.

For example, at Enron, director John Mendelsohn was president of the Enron-supported University of Texas (not Arthur) Anderson Cancer Center. Too often, directors rubber-stamp the executives. Moreover, a corporate board may include over-extended big names that are on multiple boards. Too often, a board is less a statement about serious oversight than a symbol of celebrity prestige or politically correct diversity.

Shareholders should insist on directors who are not deaf, dumb and blind.

Should analysts and money managers have had a clue?

Wall Street rewards brokerage stars who advise buy, not sell. Enron was a classic momentum stock. That means it was going up because it was ... going up.

Favored by million-dollar-a-year yuppie brokerage sycophants, Enron also was among the top 10 holdings of major reputable mutual funds, like the Janus Fund and Vanguard U.S. Growth. As recently as four months ago, Alliance Capital had doubled its stake in Enron to 43 million shares.

Typically, fund managers charge the mutual fund investors a ``management fee'' of 1 percent of assets. So, if Enron's value loses $100 million, fund shareholders lose $100 million. But the manager simply makes $1 million less.

Our own University of California lost $145 million on Enron. What politically connected managers have we chosen to oversee our UC money and other public investments?

Should Arthur Andersen have had a clue?

What about these corporate directors, brokerage analysts, mutual fund and pension fund analysts who were asleep? They now are suing Arthur Andersen, the ``outside'' auditing firm paid $1 million weekly by Enron.

What was Andersen's responsibility? To make Enron's complex financial transactions intelligible to them, and to us. That is, to report honestly to the outside world about Enron.

However, Andersen apparently valued Enron assets at several times their actual value.

In fact, this ``independent'' accounting firm not only audited Enron, it moonlighted as an Enron consultant. This increasingly common duality of auditing and consulting seems like a conflict of interest. To everyone, except those making the money - Andersen and its Enron patrons.

Whether Enron's books were cooked or not, the Enron debacle can't all be the fault of Andersen, or Kenneth Lay.

Bethany McLean and other contrarians raised seemingly unanswerable questions about Enron. Questions that were not asked by Enron's prominent directors. Questions that eluded the influential financial analysts who praised Enron. Questions that apparently never occurred to the money managers who invested in Enron.