While three years have passed since whistleblowers revealed the skeletons in Enron's accounting closet, American mistrust toward big business continues to climb, a topic that received much attention at the BetterManagement LIVE 2004 conference last week in Las Vegas.
"Enron was clearly the poster child for corporate corruption, but it was only the beginning of a tsunami rather than a wave," says Lynn Brewer at a press conference during the event. Brewer is a former Enron executive, turned whistleblower, and author of
House of Cards: Confessions of an Enron Executive.
Following Enron's collapse, more financial fauxpas surfaced from companies such as MCI WorldCom, Arthur Andersen, Peregrine Systems and others. Deceit seemed to be everywhere. And the complaints came roaring in to the Security and Exchange Commission (SEC). Prior to Enron's accounting irregularities, The SEC reported an average of 6,400 incidences of corporate corruption per month. Afterward, complaints soared to an alarming 50,000 incidences of corporate corruption per month, Brewer maintains.
To gauge the impact on consumer sentiment, Yankelovich Partners, a marketing research and services firm in Chapel Hill, NC conducted a study called "The State of Consumer Trust Report," released earlier this year. The study validated pundits' concerns that consumer trust is at an all-time low. According to the study, which polled 2,500 respondents across the U.S., 67 percent said the level of ethical and moral behavior on behalf of U.S. corporations is worse than ever.
Mistrust is bad for business. "Eighty percent of the general public makes purchasing decisions based on compliance and ethical behavior," Brewer urges.
To minimize corporate malfeasance, the government has cracked down on public companies and their accounting departments by requiring them to comply with the much-publicized Sarbanes-Oxley Act of 2002. Sarb-Ox is designed to protect investors by requiring public companies to establish an adequate set of procedures for accurate financial reporting that can be audited by a third party. Failure to comply can result in jail time for CEOs and CFOs.
However, some maintain the government went too far. The government "probably needs to roll back a few of the provisions in Sarbanes-Oxley. It was hastily pushed through Congress," says Dr. Jim Goodnight, chief executive officer of SAS, which owns BetterManagement LIVE.
Even Brewer argues that, despite popular belief, it was not an accounting issue that devastated Enron, its employees and shareholders. Instead, she maintains it was poor performance management. "The world thought it was an accounting issue, but it's just the symptom not the cause. There was a lack of understanding whether the business model would support itself and they didn't know where their revenue was coming from. And that comes down to performance management," she explains.
By performance management, she's referring to the ability of c-level executives to get "a single version of the truth" across the enterprise, or one accurate picture of the company's financial health. This enables a company to understand business initiatives and take action based on what's working and what's not.
To get a single version of the truth, SAS launched its Financial Intelligence software solution at the BML conference. The application extracts information from different sources and "transforms, manages and loads the information into a metadata repository, which then becomes the single version of the truth," says Phil Strand, global strategist and program director for SAS corporate governance and Financial Intelligence solutions. "Our financial intelligence restores shaken confidence. It insures that integrity piece," Strand says.
Financial Intelligence, Brewer maintains, enables company executives to move beyond simple compliance, as required by Sarb-Ox, and adhere to a three-pronged approach to gain consumer trust: corporate governance, corporate performance management and corporate social responsibility.