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Enronize this. (Editor's Note).

Everybody--pundits, politicians, friends, taxi drivers--keeps telling me how complicated the Enron story is. How arcane are Enron's finances, how tangled a web were its connections with Capitol Hill. In fact, so seductive is the "complicated Enron" theory that a well-placed friend reports that the biggest nightmare of certain public-company CEOs is that of being "Enronized." For the uninitiated, Enronization means having an industry profile, business model or financial statement with enough complexity that suspicious (or stupid) investors downgrade your stock, regardless of its fundamentals.

And here I thought these CEOs had low stock prices because of simple lack of performance or financial candor.

Yet for all the self-serving denial that the "complicated Enron" theory encourages among CEOs and everyone else, the lessons from Enron's meltdown are surprisingly clear:

* For CEOs, the Enron tutorial is straight out of Finance 101: If you take or use someone else's money--be it as a loan or for a share of stock--you owe that person a concise, transparent explanation of what you're doing with his or her money. No phony-baloney offshore partnerships or accounting mumbo-jumbo. Here's the dough we started with, here's what we did with it, here's how much that's left--and so on. As a sage once said: Clarity is the style of all honest men.

* For investors and business journalists, the takeaway is painfully familiar: If a company's performance looks too good to be true, it probably is. One reason for the surprising level of public outrage at Enron's executives and board is the humiliation investors and journalists feel at being hoodwinked. Enron's executives sold the lot of us (including this magazine, which named Enron's board one of its five "Best" in 2000) on a "vision" of a "new corporate structure," deriding those who questioned it. Well, we get it now: Investors and journalists were dupes. The best we can hope for is to catch the next Enron in time to say, "I told you so" instead of, "But they never told me."

* For voters, lawmakers and regulators, the Enron story is as old as influence-peddling itself: If make huge contributions to politicians of both parties, they probably have something on their minds beyond good government. Republicans and Democrats who embraced Enron's money while overlooking its practices should be even more embarrassed than the investors, who lost only money--not their reputations.

* For auditors, the new reality is stark: If you take money from a client for consulting, no one will ever again take your audit of the same client seriously. It doesn't matter if your audit and consulting practices report separately. It doesn't matter how high you build firewalls. It doesn't even matter how much integrity you and your staff have. From now on, investors, journalists, voters, lawmakers, regulators and CEOs will insist that you avoid not only impropriety, but also the appearance of impropriety.

Is that so complicated?

John Brandt

President & Editorial Director
COPYRIGHT 2002 Chief Executive Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Chief Executive (U.S.)
Article Type:Brief Article
Geographic Code:1USA
Date:Mar 1, 2002
Words:481
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