Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski, Carole Lager, Andrew Cornford and Jean-Michel Bonvin Enron and World Finance Also by Observatoire de la Finance From Bretton Woods to Basel Finance & the Common Good/Bien Commun, no. 21, Spring 2005 Ethics of Taxation and Banking Secrecy Finance & the Common Good/Bien Commun, no. 12, Autumn 2002 Will the Euro Shape Europe? Finance & the Common Good/Bien Commun, no. 9, Winter 2001–2 Dommen, E. (ed. ) Debt Beyond Contract Finance & the Common Good/Bien Commun, Supplement no. 2, 2001 Bonvin, J. M. Debt and the Jubilee: Pacing the Economy Finance & the Common Good/Bien Commun, Supplement no. 1, 1999 Dembinski, P. H. (leading contributor) Economic and Financial Globalization: What the Numbers Say United Nations, Geneva, 2003 Enron and World Finance A Case Study in Ethics Edited by Paul H. Dembinski Carole Lager Andrew Cornford and Jean-Michel Bonvin in association with the Observatoire de la Finance Selection, editorial matter and Chapters 1, 2 and 16 © Observatoire de la Finance Remaining chapters © contributors 2006 All rights reserved.
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Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–4763–5 ISBN-10: 1–4039–4763–5 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Enron and world finance : a case study in ethics / edited by Paul H. Dembinski … [et al. ]. p. cm. Includes bibliographical references and index. ISBN 1–4039–4763–5 1.
Enron Corp. —Corrupt practices—Case studies. 2. Energy industries— Corrupt practices—United States. 3. Corporations—Corrupt practices—United States—Case studies. 4. Business ethics—United States—Case studies. 5. Corporate governance—United States—Case studies. 6. Corporate culture— United States—Case studies. I. Dembinski, Pawel H. , 1955– HD9502. U54E57367 2005 333. 79 0973—dc22 2005051354 10 9 8 7 6 5 4 3 2 1 15 14 13 12 11 10 09 08 07 06 Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne
Contents List of Tables and Boxes Acknowledgements Notes on the Contributors List of Abbreviations 1 Overview of the Book Andrew Cornford Enron: origins, character and failure Transactions and institutional structure Accounting and auditing Strengthening corporate governance Corporate culture and incentive systems Ethical foundations ix x xi xv 1 2 2 3 5 9 11 Part 1 Enron: Origins, Character and Failure 19 19 20 21 24 26 26 33 35 39 40 45 Enron and Internationally Agreed Principles for Corporate Governance and the Financial Sector Andrew Cornford Introduction A sketch of Enron Accounting and transactional techniques used by Enron Enron’s financial reports Some other examples of Enron’s activities Different parties and non-observance of good corporate governance Corporate governance and the OECD Principles The policy response to recent corporate scandals Corporate governance and key financial standards Annex 1 Illustrations of Enron’s accounting and transactional techniques Annex 2 A look at some of Enron’s financial reports vi Contents 3 A Revisionist View of Enron and the Sudden Death of ‘May’ Frank Partnoy Introduction A revisionist view of Enron The regulatory response to Enron’s use of derivatives Conclusion 54 54 57 66 77 90 4 Who Is Who in the World of Financial ‘Swaps’ and Special Purpose Entities Francois-Marie Monnet Part 2 Ethics in Thought and Action 5 An Ethical Diagnosis of the Enron Affair Etienne Perrot Principles of action and the foundation of ethics: some diagnostic tools The ethical basis or an analysis of the Enron affair Conclusion 6 Anonymity: Is a Norm as Good as a Name? Edward Dommen A society of the anonymous What does anonymity convey? Anonymity and compartmentalisation Norms and names Is communitarianism the answer to anonymity? Decent dress: how much to reveal? Conclusion 7 Spaces for Business Ethics Domingo Sugranyes Bickel New forms, old problems An unfinished revolution Codes of conduct and social responsibility Corporate culture as the key The combination of people and capital The bottom of the pyramid 103 03 105 116 117 118 119 122 122 126 127 128 131 131 132 134 135 136 137 Part 3 Corporate Governance and Auditing 8 The Demise of Andersen: A Consequence of Corporate Governance Failure in the Context of Major Changes in the Accounting Profession and the Audit Market Catherine Sauviat 143 Contents vii The Andersen collapse as a case of corporate governance failure Concentration, diversification and loss of independence Auditing as the ‘poor relation’ of professional services: the problem and its effects at Andersen Conclusion 9 Enron et al. nd Implications for the Auditing Profession Anthony Travis Introduction Historical role of the auditing profession The expanding role of external auditors to identify fraud Unanswered questions Today, a regulated profession 10 Enron Revisited: What Is a Board Member to Do? Beth Krasna High risk accounting Inappropriate conflicts of interest Extensive undisclosed off-the-books activity Excessive compensation Lack of independence Fiduciary failure – a Board is not a team 11 How to Restore Trust in Financial Markets?
Hans J. Blommestein Introduction Public information, valuations and financial market efficiency The central role of the gatekeepers of public trust in the new financial landscape Why have the gatekeepers of public trust failed? A fundamental response is needed to restore public trust 144 148 151 154 159 159 160 162 163 163 168 168 171 173 174 176 177 180 180 181 182 182 187
Part 4 Corporate Culture and Ethics 12 Enron: The Collapse of Corporate Culture John Dobson Introduction Enron’s corporate culture America’s corrupt corporate culture: an educational failure Rising from the ashes of Enron: building a sound foundation for corporate culture Some concluding thoughts 193 193 194 198 200 203 viii Contents 13 Ethics, Courage and Discipline: The Lessons of Enron Robert G.
Kennedy The external response: law and regulation The internal response: professionalism The character of business professionals Business schools and corporate cultures 14 Developing Leadership and Responsibility: No Alternative for Business Schools Henri-Claude de Bettignies The ‘leadership’ dimension The ‘responsibility’ dimension Leadership and responsibility: two facets of the same challenge 15 Ethics for a Post-Enron America John R. Boatright What went wrong? What is to be done? 206 207 208 213 215 217 218 219 222 226 227 229
Part 5 Conclusion 16 Enron: Visiting the Immersed Part of the Iceberg Paul H. Dembinski and Jean-Michel Bonvin Enron, a multi-causal reading ‘Financiarisation’: trust in finance Loss of bearings – the conflict of interest example Beyond ‘financiarisation’: common good at risk Index 237 237 240 243 245 253 List of Tables and Boxes Tables 2. 1 Effects of application of six accounting techniques on Enron’s financial statements for 2000 2. 2 Adjusted components of Enron’s key credit ratios 25 25 Boxes 1. 1 2. 1 2. 2 2. 3 3. 1 3. 3. 3 Selected legal proceedings connected to the Enron case International Financial Reporting Standards (IFRS) International Standards on Auditing Prepays precedents and applicable law Derivatives markets The concept of a ‘prudency’ reserve Forward curves 7 20 20 23 55 65 65 ix Acknowledgements The editors and publishers wish to thank the Villanova Law Review for permission to use Frank Partnoy’s article, ‘A Revisionist View of Enron and the Sudden Death of “May” ’; the Phi Kappa Phi Forum for permission to use John R.
Boatright’s article, ‘Ethics for a Post-Enron America’; and Andrew Cornford and the International Group of Twenty-Four on International Monetary Affairs, UNCTAD, for permission to use Andrew Cornford’s paper, ‘Enron and Internationally Agreed Principles for Corporate Governance and the Financial Sector’. Every effort has been made to trace all copyright-holders, but if any have been inadvertently overlooked the publishers will be pleased to make the necessary arrangement at the first opportunity. Notes on the Contributors Henri-Claude de Bettignies holds the AVIVA Chair in Leadership and Responsibility, and is Professor of Asian Business and Comparative Management at INSEAD. Since 1988, he has had a joint appointment as Visiting Professor of International Business at Stanford University. He started and developed INSEAD’s activities in Japan and the Asia Pacific region, which led in 1980 to the creation of the Euro-Asia Centre, and in 2000 to the creation of the INSEAD campus in Asia.
He is currently engaged in the development of the Ethics initiative at INSEAD, and is pioneering a new approach (AVIRA) to enlighten business leaders. AVIRA encourages very senior executives to explore their responsibilities as leaders, and the responsibility of their organization, in an uncertain and fast-changing global environment. The programme enhances understanding of the complex interdependency between responsibility and decision-making and the implementation process, taking action at the top.
H. -C. de Bettignies is on the Editorial Board of several journals, including The Journal of Asian Business, The International Journal of Business Governance and Ethics, Finance & the Common Good/Bien Commun. Among the books published under his name is The Changing Business Environment in the Asia Pacific Region (London: International Thomson Business, 1997). He has published more than sixty articles in business and professional journals. Hans J.
Blommestein is the Head of the Capital Markets Programme at the OECD, and the PricewaterhouseCoopers Professor of Finance at Tilburg University, The Netherlands. He has published widely on banking issues, the transformation of financial systems and financial institutions, new financial instruments, risk management, the impact of ageing populations and institutional investors on financial markets, the development of securities markets, ethics and finance, and public debt management. John R.
Boatright is the Raymond C. Baumhart, S. J. , Professor of Business Ethics in the Graduate School of Business at Loyola University Chicago. He currently serves as the Executive Director of the Society for Business Ethics, and is a past president of the Society. He is the author of the books Ethics and the Conduct of Business (Upper Saddle River: Prentice Hall, 2003) and Ethics in Finance (Oxford: Blackwell Publishing, 2002). He received his PhD in Philosophy from the University of Chicago.
Jean-Michel Bonvin has a PhD in Sociology from the University Paris IVSorbonne, and is Professor of the Department of Sociology of the University of Geneva. His main fields of interest are the sociology of justice xi xii Notes on the Contributors and social theory, the sociology of financial activities, employment and social protection. Among his books are L’Organisation internationale du travail. Etude sur une agence productive de normes (Paris: PUF, 1998) and Gemeinwohl. Ein kritisches Pladoyer (with G. Kohler and B. Sitter-Liver) (Fribourg: Academia Press, 2004).
He also publishes extensively in leading national and international reviews on issues related to social justice and social theory. Andrew Cornford had been for several years Senior Economic Adviser specialising in financial markets and financial services in the division of UNCTAD dealing with macroeconomics and finance, whose responsibilities included assistance to developing countries participating in negotiations in GATT/WTO. He is now Research Fellow for the Financial Markets Center, a non-profit institute providing research, policy development and education resources.
Paul H. Dembinski is a Professor at the University of Fribourg, where he teaches International Competition and Strategy. He is also the initiator and Director of the Foundation of the Observatoire de la Finance (http://www. obsfin. ch) and the founder and editor of the bilingual journal Finance & the Common Good/Bien Commun. A political scientist and economist by training, he has written a dozen books and some sixty scientific articles in the field of the internationalisation of enterprises, the globalisation of enterprises, competition, ethics and finance.
His main books include Financial Markets. Mission Impossible? (Paris: FPH, 1993); L’internationalisation des PME suisses a l’horizon de l’an 2000 (Geneva: Georg, 1994); La privatisation en Europe de l’Est (Paris: PUF, 1995); Economie et Finance (Berne: BPS, 1995); Economic and Financial Globalization: What the Numbers Say (New York/Geneva: United Nations, 2003); Les PME suisses: profils et defis (Geneva: Georg, 2004; also in German – Zurich: Ruegger Verlag, 2004).
John Dobson received a BSc in Economics from the University of Lancaster, in 1979, before coming to the USA to pursue graduate work at the University of South Carolina, where he earned a Master’s degree in Economics in 1981, and a PhD in Finance in 1988. Since completing his PhD, he has become increasingly interested in business ethics, and in particular how the theory of ethics relates to financial side of business activity. He has published articles on ethics and finance in various academic journals, and written two books, both of which investigate the synthesis of finance and ethics.
His current research focuses on the connections between psychology, finance theory and moral philosophy. Edward Dommen, a specialist in economic ethics, is President of the Scientific Committee of the Geneva International Academic Network. His recent publications include How Just Is the Market Economy? (Geneva: World Council of Churches, 2003). Notes on the Contributors xiii Robert G. Kennedy is a Professor in the Departments of Management and Catholic Studies at the University of St Thomas, Saint Paul, Minnesota. He earned his doctorate at the University of Notre Dame (USA).
His areas of academic specialisation are professional ethics and the Christian social tradition. Recent papers include ‘Wealth Creation within the Catholic Social Tradition’, ‘The Professionalization of Work’ and ‘The Practice of Just Compensation’. Beth Krasna is an independent Board member of Vaud Cantonal Bank, Swiss Federal Institutes of Technology; Raymond Weil SA; and a former vice-chairman of the Swiss Railways. She has ten years’ experience as a CEO in the turnaround of industrial companies (Valtronic, Secheron and Symalit), and prior to that ten years’ experience in venture capital.
She holds a MSc in Chemical Engineering from the Swiss Federal Institute of Technology in Zurich, and a MSc in Management from the Sloan School, Cambridge, USA. Carole Lager has a PhD in Political Science from the University of Geneva. She is a scientific collaborator at the Observatoire de la Finance in Geneva and the editorial officer of the review Finance & the Common Good/Bien Commun. Her main research interests and areas of expertise focus on the European Union and on the socio-political aspects of money. Among her publications are: La face cachee de l’euro (Brussels: PIE-Peter Lang, in Press), ‘L’euro, symbole d’identite europeenne? Etudes internationales, March 2005; L’Europe en quete de ses symboles (Berne: Peter Lang, 1995). Francois-Marie Monnet is a holder of a Diploma of the Institute for Political Studies in Paris (1970) and of an Arts Degree of the Sorbonne in Paris (German language), he became the foreign correspondent of the French newspaper Le Monde in Canada before switching in 1976 to a banking career at Banque Nationale de Paris and subsequently Morgan Stanley & Co. , where he rose to be Vice-president of Corporate Finance through several assignments in Paris, New York and London. He left London for Geneva in 1987 o head the Swiss capital markets unit of Credit Commercial de France (now part of HSBC). In 1991, he created an independent bond broker, Bridport & Co. , and six years later joined MultiPlus Finance, an independent financial adviser specialising in monitoring management mandates for a limited number of large investors. Elected in 1999 to chair the Swiss Bond Commission of the European Federation of Financial Analysts’ Societies (EFFAS) and Secretary of the European Bond Commission in 2001; selected as member of the Swiss Stock Exchange Bond Index commission set up in 2004.
Sits on the Board of Directors of the Sicav ‘Dexia Ethique-Gestion Obligataire’, created in April 2000 to respond to the needs of various institutional investors. Frank Partnoy is a Professor of Law at the University of San Diego, where he teaches courses on corporations, corporate finance, deals, financial market xiv Notes on the Contributors regulation and white collar crime. He is the author of more than a dozen law review articles and book chapters on various topics in law and finance, and has written two books about financial markets: Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (New York: Henry Holt & co. 2003) and FIASCO: Blood in the Water on Wall Street (New York: W. W. Norton & co. 1997). Prior to teaching, he was an attorney at Covington & Burling, and an investment banker at Morgan Stanley and CS First Boston. He is a graduate of Yale Law School. Etienne Perrot is an economist specialising in the phenomena of economic rent and corruption, a Jesuit and editor of the Paris-based journals Etvdes and Projet. His most recent book is L’argent (Paris: Editions Salvator, 2002) and his most recently published article ‘L’arma monetaria’, La Civilta Cattolica, 18 September 2004.
Catherine Sauviat is a senior economist at IRES (Institut de Recherches Economiques et Sociales, France). She has published numerous articles in academic journals and written chapters in collective books (notably on professional services). She is currently working on financial globalisation and its implications at macro and micro levels. She teaches International Economics in Service Industries at Paris-XIII Villetaneuse University. Domingo Sugranyes Bickel graduated in economics from the University of Fribourg, Switzerland, in 1969.
He is a member of the Executive Board of MAPFRE, a Spanish mutual insurance group with a publicly listed ‘downstream holding’ subsidiary; the group is the number one insurer in Spain and operates in thirty-eight countries, with a significant position in Latin America, has 19,000 employees and more than 25,000 agents. He has been involved since the 1970s in the work of UNIAPAC (the International Christian Union of Business Executives), of which he was General Secretary from 1974 to 1981, and President in 1997–2000.
Anthony Travis is a UK chartered accountant and former partner in PricewaterhouseCoopers, Geneva, and is responsible for auditing and regulatory issues at a number of Swiss-based international banking groups. His professional career has involved working on virtually every continent. He is a former chairman of the British–Swiss Chamber of Commerce in Geneva and for fifteen years was a founding board member of the Family Business Network, Lausanne. He is a member of the board of L’Observatoire de la Finance, Geneva. List of Abbreviations
AC AICPA CalPERS CAO CEO CFMA CFO CFTC CLN COO CPA CSR EDF EIB EMH EU FAS FASB FERC GAAP GAO IAIS IAS IASB IASC IASCF IFAC IFRS IMF IOSCO IPO ISO JEDI LIFFE LLP MAS MBA MD&A Andersen Consulting American Institute of Certified Public Accountants California Public Employees’ Retirement System Chief Accounting Officer Chief Executive Officer Commodity Futures Modernization Act Chief Financial Officer Commodity Futures Trading Commission Credit-linked note Chief Operating Officer Certified public accountant Corporate social responsibility Electricite de France European Investment Bank Efficient market hypothesis European Union Financial Accounting Standard Financial Accounting Standards Board Federal Energy Regulatory Commission Generally Accepted Accounting Principles General Accounting Office International Association of Insurance Supervisors International Accounting Standards International Accounting Standards Board International Accounting Standards Committee International Accounting Standards Committee Foundation International Federation of Accountants International Financial Reporting Standards International Monetary Fund International Organization of Securities Commissions Initial public offering Independent System Operator Joint Energy Development Investments London International Financial Futures Exchange Limited liability partnership Management Advisory Services Master of Business Administration Management Discussion and Analysis xv xvi List of Abbreviations NGO NPV NRSRO NYMEX OECD OTC PCAOB POB PRC PSG ROSCs SEC SFAS SOX SPE SPV TNPC UBS VAR VPP WTO
Non-governmental organisation Net present value Nationally Recognized Statistical Rating Organization New York Mercantile Exchange Organisation for Economic Co-operation and Development Over-the-counter Public Company Accounting Oversight Board Public Oversight Board Performance Review Committee Professional Standards Group Reports on Standards and Codes Securities and Exchange Commission Statement of Financial Accounting Standards Sarbanes-Oxley Act Special purpose entity Special purpose vehicles The New Power Company Union des Banques Suisses Value at risk Volumetric production payments World Trade Organization 1 Overview of the Book Andrew Cornford This book ranges widely over the different aspects of corporate practice and governance, law and ethics involved in the Enron case, and of the policy responses to the recent corporate scandals in the USA and internationally. Broadly, they can be classified under the following headings: ? ? ? ? Transactions and institutional structure. Major subjects here are Enron’s use of transactions such as derivatives and of institutions such as special purpose entities (SPE) to restrict the transparency of its operations. These practices have posed a major challenge to corporate governance. Accounting and auditing.
This heading is closely related to the first, since the opaqueness of Enron’s operations was reflected in its financial reports and the accounting firm, Arthur Andersen, also served as adviser and consultant regarding the design and conformity with regulations of many of its transactions. Corporate governance. High-quality accounting and auditing are necessary for good corporate governance, but other parties – such as the firm’s Board of Directors its regulators, its banks and investors, credit rating agencies and investment analysts – all have essential roles here. These socalled ‘gatekeepers’ fell short in the performance of their duties in the Enron case. Failures under this heading have helped to shape recent reforms. Corporate culture and ethics.
These dimensions of a firm overlap with corporate governance, since good corporate governance will not be achieved in the absence of an ethical corporate culture. The dividing line between corporate governance and corporate ethics is difficult to specify. Roughly, the first concerns major rules and norms related to a firm’s management and operations, and the relations between the main parties, (including those external to the firm, that assure, or are significantly affected by, its functioning); and the second concerns features of a firm’s organisation and functioning that are conducive to the observance of good corporate governance and ethical behaviour. Subjects under the 1 2 Overview of the Book ? atter heading include not only the conduct of senior executives and other employees, but also business education and conceptualisation of the firm in management thought. Ethical foundations (meta-ethics). Not only corporate culture but also many other rules and norms governing business operations are related directly or indirectly to more fundamental values and moral principles. These are not a universal datum for different cultures and value systems, and the discussion in this book is inevitably highly selective. The overview of the chapters that follow focuses on salient features of the contributions under these different headings, and on their mutual relations.
It also points to questions that the contributions raise which merit, and will no doubt receive, more detailed consideration by others in the future. Enron: origins, character and failure Several of the chapters describe aspects of Enron’s history and the collapse of Arthur Andersen. An overall account is to be found in Andrew Cornford’s Chapter 2. This describes the use by Enron of transactions and institutional structures to manipulate the firm’s financial reports and to avoid regulation. It documents the failings of Andersen, Enron’s auditors, of the Board of Directors, of the other ‘watchdogs’ or ‘gatekeepers’ mentioned above, and of the firm’s different regulators.
The subject of Enron’s corporate culture is broached through a review of its hiring practices and its unusually rigorous but ultimately counter-productive system of incentives and sanctions for its employees. This serves as an introduction to more detailed discussions in other contributions of particular aspects of Enron’s operations and culture, as well as analogous features of other businesses in the contributions by the other authors. Transactions and institutional structure It is now a commonplace of financial engineering that its instruments can be used to get round regulations and other operational constraints, such as banks’ credit limits to particular borrowers.
Enron made extensive use of derivatives for these purposes, and perhaps more importantly to reduce the transparency of its financial reports. Derivatives are the linchpin of Frank Partnoy’s review of Enron in Chapter 3, and are central to his critique of the regulatory response in the USA. He brings out the extent to which Enron became a derivatives firm whose main source of profits was its trading of these instruments. 1 SPEs played a subordinate role in Partnoy’s view, providing institutional structures that enabled Enron to exploit fully the potential of derivatives. As a trading firm, Enron absolutely required an investmentgrade rating from the credit-rating agencies. As its ability to avoid regulations Andrew Cornford 3 pplicable to debt financing, derivatives and transparency broke down in 2001, its rating was threatened and eventually its stock price collapsed. Crucial to this story is Partnoy’s view that weaknesses in the transactional regulation of Enron’s trading and position-taking, particularly in over-thecounter (OTC) as opposed to exchange-traded derivatives, provided the firm with the scope it needed, and that the regulatory oversight of Enron as a firm (which, as Cornford pointed out, was in any case not carried out to a reasonable standard) was no substitute. In his analysis of the Sarbanes-Oxley Act (SOX), Partnoy emphasises that firms’ standards of transparency for derivatives and other off-balance-sheet risks have not properly been addressed in key rules for the Act’s implementation.
This means that they continue to have the possibility of using ‘financial engineering as a kind of plastic surgery’ to make themselves look better than they really are. 2 Francois-Marie Monnet also devotes much attention in Chapter 4 to derivatives and their impact on transparency, and his graphic analogy is between Enron and ‘l’escamoteur’, whose skill lies in diverting the attention of the audience from the hand or other place where the trick is performed. Monnet is also concerned with a more general issue raised by derivatives use, the growth in the financial system’s dependence on tradable instruments, and the associated reduction in face-to-face relations between creditors or investors and those they finance.
These developments have various consequences, such as the increased difficulty for analysts to identify firm’s true exposures to financial risks and the continuous need for liquidity in the markets for the instruments of the new finance. The implications for business ethics of the greater anonymity now characteristic of relations between parties in financial markets are also discussed in contributions by other authors. Taken to an extreme, this trend could have consequences highlighted in the following quotation from an authoritative treatise on derivatives law: Banks may cease thinking of themselves as traditional bank lenders, in the sense of making loans funded primarily through deposits and incurring long-term credit risk … Going a step further, the technology may now be in place for ‘notional banks’. A notional bank ould be an institution that is exposed to all the risks of a commercial bank which has deposits, loans, trading accounts and the like, with a difference: the notional bank will not take deposits and will not make (or arrange) loans. The risk and return profile of a traditional commercial bank would be replicated notionally, but would need to be supported by substantially less office space, personnel and capital. (Henderson, 2003, pp. 120–1) Accounting and auditing The transparency which is an essential part of models of corporate governance depends crucially on the satisfactory performance of accountants and 4 Overview of the Book auditors, as is emphasised by both Cornford and Partnoy.
A number of issues bearing more specifically on this performance in the Enron case and other recent corporate scandals, as well as on the future of accountants and auditors, are taken up in the chapters by Catherine Sauviat (Chapter 8) and Anthony Travis (Chapter 9) and more peripherally by other contributors. Sauviat describes major features of the legal and institutional environment as well as of Andersen as an institution, which frame the firm’s failings regarding Enron, while Travis focuses more on longer-term pressures in the practice of auditing and on accounting firms. These pressures underlie his views as to the shortcomings of reform initiatives so far.
Sauviat describes the sharp rise in the number of restatements of earnings in the USA from 1997 onwards, the conflicts of interest associated with the growing importance to accounting firms’ earnings of non-auditing services, the limits on the legal liabilities of auditors in the USA introduced in 1995 and 1998, the length of audit tenures in major US firms, and shortcomings in accounting firms’ systems of peer reviewing. She also focuses on aspects of Andersen that she regards as contributing to the firm’s involvement in some other major auditing failures as well as the Enron case. From the point of view of business ethics, her reference to the emphasis in Andersen’s in-house training on ‘the one firm concept’ is particularly interesting: this involved the drilling of staff in a single set of methodologies and types of specific knowledge, and tended to instil robotic approaches to problems. From the point of view of the economics of Andersen’s business, also very interesting is her description of the exclusive relationship with Enron of the firm’s lead auditor in the Houston office, David Duncan, who did not deal with any other client. Sauviat also raises the political dimension of Andersen’s indictment, linked in her view to the Bush Administration’s need for a scapegoat to deflect public indignation. As Travis emphasises, this indictment was effectively Andersen’s death-warrant because of the likelihood of a consequent suspension by the Securities and Exchange Commission (SEC) of Andersen’s rights to practice – a situation of which those who decided to prosecute were fully aware. Andersen’s demise followed the haemorrhage of its clients to other firms even before a ‘guilty’ verdict.
As a practising auditor, Travis believes that his profession is held to exacting legal standards that are becoming increasingly difficult to meet, to a significant extent because of the internationalisation of business – of both firms and their auditors. The increasing involvement of auditing firms in the provision of non-auditing services he views as being to a great extent a response to increasing downward competitive pressures on auditing fees4 so that the issue of ensuring the adequacy of such fees may need to be revisited as part of the reforms now being undertaken in Europe as well as the USA in the aftermath of recent corporate scandals.
Regarding problems raised by internationalisation, he points to the difficulty of achieving satisfactory cross-border co-operation in auditing in the face of different national rules. Andrew Cornford 5 In their discussion of the policy response in the USA to recent corporate scandals, Sauviat and Travis express different views as to the part that should be played by the public sector in the regulation of auditing. Sauviat accepts the direction of policy towards greater official involvement implicit in the creation by SOX of the Public Company Accounting Oversight Board (PCAOB), but would like to go further, supporting the selection of firms’ auditors by a public agency financed by the contributions of audit clients.
By contrast, Travis is wary of greater intrusion of the public sector into auditing, raising questions as to the possibility of breaches in the confidentiality of the auditing process and as to the liability of the government if audits are seen to carry some measure of official endorsement. Similar questions were raised in the debates in the USA at the time of the New Deal Acts of 1933–35 which reformed the securities business and accounting practice after the speculative excesses of the 1920s. 5 In his observations on the way forward, Travis devotes more attention to the basic characteristics of accounting and auditing than to particular failures in recent corporate scandals.
His discussion includes widespread illusions as to the exactitude and precision of financial statements and the need for greater flexibility in both the preparation of financial statements (which will thus be capable of accommodating new business practices) and in audit attestation standards; the debate over rules-based versus principles-based accounting (a subject also taken up by John Boatright in a later chapter) which Travis believes fails to pay sufficient attention to the inextricable links between the two approaches in accounting standards; and auditor liability, which currently serves as an impediment to the greater emphasis on judgement as opposed to rules. In Chapter 11, Hans Blommestein approaches accounting and auditing failures through the theory of efficient financial markets in which market participants’ use of reliable information plays an essential role. A business world characterised by rapid innovation has interacted with a moral climate of overweening individualism to undermine the observance of ethical standards, and thus the trust and integrity on which market efficiency depends. For their restoration, he would depend as far as possible on the price exacted by the financial markets themselves for unacceptable business conduct.
However, he would also like to see speedier incorporation in accounting standards of new financial instruments, and the introduction of ethical audits to supplement traditional audits. Regarding the latter, some firms are already producing audits of this kind. However, if ethical audits were to become part of normal practice, further thought would need to be given to their contents, their target audiences, and the identity of those who would produce them. Strengthening corporate governance Corporate governance covers relations between a firm and the different parties that have an influence on its functioning or that are affected 6 Overview of the Book significantly by its operations.
Reforms in response to recent corporate scandals have been directed at remedying weaknesses in the performance of management, Boards of Directors, and the other ‘gatekeepers’ listed above, including firms’ auditors. Cornford’s account of international initiatives focuses principally on the main set of international standards, the OECD Principles of Corporate Governance, whose flouting in the Enron case was particularly striking with respect to shareholder rights, disclosure and transparency, the performance of the Board of Directors, and abusive self-dealing. Cornford also notes the way in which the Enron case has highlighted difficulties of regulating conglomerate firms supplying goods and services subject to various different regulatory regimes.
Regulatory failures here were evident principally at the national level, but cases can be envisaged in which the challenges to cross-border regulation and supervisory co-operation assume greater importance. Initiatives to deal with these problems are still in their infancy. And further progress will inevitably be gradual, not only because of the complexity of the issues involved and the limitations of existing forums for the formulation of international standards but also because of the difficulty of achieving a consensus for standards concerning subjects whose treatment in countries’ company and insolvency law reflects different national histories. In Chapter 10, Beth Krasna examines the requirements for successful performance of their role by a firm’s Board of Directors in the light of the failure in the Enron case.
These include both organisational issues and competences, and her discussion of the fiduciary failures of Enron’s directors concerns a subject where corporate governance overlaps corporate ethics and culture. She also raises the important but sometimes overlooked question of the monitoring of the Board’s own performance, which she would entrust to evaluations by the Board itself. Several authors take up different aspects of SOX, the most important national reform adopted in response to recent scandals. As already noted, Partnoy provides a detailed explanation of his view that the Act will not redress the weaknesses in the regulation of derivatives, which he views as the central feature of the Enron case. And Travis raises the Act’s failure to address in a satisfactory manner underlying problems of accounting and auditing.
SOX relies to a significant extent on criminal penalties for senior managements’ failures to fulfil their responsibilities. Such reliance does not figure prominently in the contributions to this book, whose authors would clearly prefer to rely primarily on changes in incentives and in business culture, better rules and standards, and improvements in observance of them. SOX, however, builds on a regime in the USA in which historically criminal punishment for business misdeeds has played an especially important role. Both the Enron case and other recent corporate scandals have been followed by prosecutions of major participants and substantial fines in cases already resolved (see Box 1. 1). 7 Box 1. Selected legal proceedings connected to the Enron case6 As of early 2005, charges had been brought against thirty-three people or firms connected to the Enron case: ? ? ? ? fifteen of these people had pleaded guilty; five people and one firm had been convicted; one person had been acquitted; and eleven people had been charged, of whom eight were awaiting trial and three (British bankers) were fighting extradition. Among these, a number are of particular interest because of their prominent roles in events that have been the subject of special attention in commentary on the Enron case. Of Enron’s senior managers, Kenneth Lay, Jeffrey Skilling and Richard Causey were awaiting trial.
Lay was Chief Executive Officer (CEO) and Chairman of the Board of Directors of Enron from its formation in 1986 until February 2001, when he stepped down as CEO but continued as Chairman. On the resignation of Skilling in August 2001, he resumed his position as CEO. Skilling was either a consultant to or an employee of Enron from the late 1980s until December 2001. First hired in 1990, he held various management positions until being appointed President and Chief Operating Officer (COO) in 1997. In February 2001, he became President and CEO, positions from which he resigned in August 2001. Causey was a certified public accountant who joined Enron from Arthur Andersen in 1991 and became the firm’s Chief Accounting Officer (CAO) in 1998. ? ? ? ?
Lay, Skilling and Causey have all been indicted on charges related to the manipulation of the firm’s reported financial results, and making false and misleading statements about Enron’s financial performance and results; Causey also faces charges of money laundering (participation in financial transactions involving the proceeds of unlawful activity); Skilling and Causey also face charges of insider trading in Enrons stock; and Lay also faces charges of bank fraud in the form of misrepresentations to banks in connection with borrowing to finance securities operations. Other senior Enron managers who have pleaded guilty under plea agreements include Andrew Fastow, Ben Glisan, Michael Kopper and David Delainey. Fastow was Enron’s Chief Financial Officer (CFO) during most of 1998–2001, having previously served as a Managing Director.
Glisan was Treasurer of Enron from the spring of 2000 until October 2001. Kopper was a financial officer of Enron from 1994 until July 2001. From the beginning of 2000 until July 2001 he was involved in the management of one of the SPEs controlled by Enron and used for transactions designed to manipulate its financial statements. On his resignation from Enron he bought Fastow’s interest in this SPE. Delainey was a former head of two large Enron divisions, Enron North America and Enron Energy Services. ? Fastow pleaded guilty to charges related to his involvement in the manipulation of Enron’s financial statements through transactions with SPEs under his 8 ontrol, and to self-enrichment in violation of his duties to Enron’s shareholders through transactions with such SPEs. Fastow’s guilty plea was conditioned upon that of his wife, Lea Fastow, to tax fraud in connection with profits received by the Fastow family from an SPE controlled by Enron (which led to a one-year prison sentence). ? ? ? Kopper pleaded guilty to charges related to transactions arising out of his involvement in the SPE controlled by Enron (see above). Glisan pleaded guilty to involvement in the creation and use of an SPE for illegal transactions intended to manipulate Enron’s financial statements, and was sentenced to a prison term of up to five years.
Delainey pleaded guilty to charges that he used profits from Enron’s energy trading to conceal losses in other activities that the firm was promoting to investors, and that he engaged in insider trading in the firm’s stock. With the exception of Glisan and Lea Fastow, those who have pleaded guilty are still at the time of writing awaiting sentencing. Such sentences generally include a fine and forfeiture of the proceeds of illegal acts of which the accused are found quilty or plead guilty. The latter sums can be large. For example, Andrew Fastow forfeited approximately US$24 million, and in the case of Skilling the prosecution is seeking more than US$50 million.
In the case of Lay, forfeitures sought include ‘a sum of money equal to the amount of the proceeds obtained as a result of the conspiracy, and securities and wire fraud offenses, for which the defendants [Skilling and Causey as well as Lay] are jointly and severally liable’, an amount for which no estimate is given but which will also be large. Daniel Bayly, James Brown, William Fuhs, and Robert Furst, bankers from Merrill Lynch, and Daniel Boyle, an Enron Vice-President in Global Finance, were found guilty of involvement in parking Enron’s interest in some Nigerian barges mounted with electricity generators which Enron had been planning to sell to another investor in a deal that fell through.
The parking enabled Enron to record US$12 million in earnings and US$28 million in cash flow required to meet the firm’s 1999 targets. Merrill Lynch participated in this transaction on the basis of a secret oral promise that within six months it would be able to sell its interest at a profit – in the event to an SPE controlled by Enron. Arthur Andersen, auditor and provider of consultancy services to Enron, was convicted in a June 2002 jury trial of the single felony count of obstruction of justice by impeding the government’s investigation of Enron. The fine imposed was less damaging than the obstruction-of-justice indictment itself in mid-March 2002, which led to the haemorrhaging of Andersen’s client list.
David Duncan, the Andersen partner in Houston in charge of the firm’s Enron account, had earlier, in April 2002, pleaded guilty to a charge of obstruction of justice and agreed to co-operate in the case against Andersen. The Supreme Court has agreed to hear Andersen’s appeal, in which a key issue is likely to be whether the destruction of documents before the receipt of a subpoena from the SEC provided valid grounds for the firm’s conviction. Andrew Cornford 9 Corporate culture and incentive systems In a recent article, John Kay looked at different aspects of the question of whether there is such a thing as corporate personality:7 Many economists and business people think this anthropomorphisation of the company is sentimental tosh. A company is a nexus of contracts defined by its charter or articles of association.
Lawyers have tried to resolve the issue in a different way. They search for a ‘directing mind’, whose thoughts and desires can be detected in everything the organisation does … But neither the nexus of contracts nor the directing mind describes the reality of modern corporate life. If a business was no more than a nexus of contracts, you could establish an equally successful business by reproducing the nexus of contracts. You cannot because an effective organisation relies on the social context surrounding its nexus of contracts … So in both good and bad companies, corporate personality is a commercial reality, not just a legal construct. And if the company has its own distinctive character, like an ndividual, that refutes the claim that the company is necessarily amoral, that it has no ethics only interests … Companies have no immortal soul but, like human beings, they live and die. While they live, they prosper by the attributes of their personality. Kay’s examples of psychopathic companies include Enron and Arthur Andersen. And corporate culture and ethics are covered in several of the chapters in this volume. Character, especially that of business leaders, is a recurring theme of the contributors – see, for example, the remarks of Boatright (Chapter 15), Henri-Claude de Bettignies (Chapter 14), John Dobson (Chapter 12), and Robert Kennedy (Chapter 13). This character in turn needs to be harnessed to good goals.
Here the focus of much of the authors’ attention is the shortcomings of firms’ goals, recently all too evident in conduct such as the maximisation of short-term shareholder value. Boatright and Kennedy both underline failures involving the fiduciary duty of firms’ managers in recent scandals. Kennedy would like to see a movement towards the observance of a genuine professional ethic by the managers and specialised workers upon whom the modern corporation depends. Part of the responsibility for promoting such an ethic would devolve upon business schools. For de Bettignies, the guiding principle of corporate ethics should be acknowledgement of the corporation as society’s most important value-creation mechanism, this term being understood to entail contributions transcending shareholder value.
The two ideas are perhaps nicely encapsulated in Peter Drucker’s statement that ‘it is to supply the consumer that society entrusts wealth-producing resources to the business enterprise’ which, as a commentator notes, is intended not so much as a working assumption as a moral starting-point for his thought (Beatty, 1998, p. 106). 10 Overview of the Book In his extended discussion of the contents of business education Dobson pays considerable attention to the underlying model of the firm used in teaching. The reductionist concept of a firm as a nexus of contracts mentioned in Kay’s article and excessive emphasis on narrow financial rationality receive special criticism.
In his view, these lead too easily to a perspective according to which observance of ethical guidelines is a constraint that should be circumvented or ignored as far as possible, so that the contribution of such observance to healthy internal working relations and the long-term prospects of the firm has little value as such. But how far will those responsible for education in business schools be prepared to take such criticism in the present intellectual climate? The emphasis on narrow financial rationality is, after all, in accord with the model of the economically rational person that has been an essential element of mainstream postwar economic theory.
Ability to use this model in both theoretical and empirical work is widely regarded within academy as providing a more-or-less objective criterion for the evaluation of professional competence, and thus plays an important part in hiring and promotion in economics faculties and business schools. Primarily on the basis of his first-hand experience of insurance in Latin America, Domingo Sugranyes Bickel views in Chapter 7 improvements in corporate culture, enhanced transparency and better corporate governance, and a more successful and humane process of economic development as recently being subject to mutually reinforcing trends. Sugranyes see progress in transparency and corporate governance as being linked to greater financial openness – for example, in the form of opening stock markets to external investors. Questions raised by his optimism relate to a generalisation from what is only one stage in a much longer-term process.
In emerging-market countries there are generally several basic and often almost self-evident reforms to both financial markets and corporate governance which can improve economic performance and render economies less vulnerable to financial instability and crisis. But more advanced financial sectors can be expected to bring a new set of problems linked to the new kinds of transactional and organisational complexity that usually accompany them (and that are exemplified to an extreme degree by Enron). For example, a number of legal cases involving firms in developed and emerging-market countries as counter-parties indicate that problems already posed by derivatives in the former – their use to avoid financial regulation, misrepresentation and abuse of fiduciary responsibilities – are becoming more common in the latter. 8 Economic incentives unavoidably have a key role in a firm’s culture.
This role involves a two-way process, since not only does this culture reflect a firm’s system of incentives but it is itself also a major influence on the design of the system. Many of the contributors emphasise the incentives to disinformation when management’s remuneration is linked closely to the price of the firm’s stock. Broader issues related to the remuneration of top management are now also looming larger in public debate. One topic here with Andrew Cornford 11 ethical implications is the recent rapid increase in the gap between this remuneration and that of other categories of a firm’s employees, a tendency that has been particularly marked in the USA, but which has begun to spread to other countries.
This is a subject not covered directly in the contributions here that deal with firms’ ethics, but the connection between exceptionally high levels of remuneration for top management and the maximisation of shareholder value as a firm’s overriding goal is increasingly difficult to avoid as part of corporate governance, even though it does not figure in the policy initiatives discussed above – no doubt owing the divergence of norms in different countries and the likelihood of political resistance to any attempt to set principles in this area internationally. Ethical foundations Corporate culture and ethics opens up questions concerning the deeper foundations that underlie its values and rules, and help to provide their meta-ethical legitimacy. Some might argue that, because of inevitable differences regarding the subject, probing such philosophical frameworks serves no useful purpose in discussions of corporate ethics and culture. As long as the values and rules are well established, capable of adaptation as necessary, and supported by ‘durable public opinion’, their use requires no further justification. However, most people probably expect something more than this, and in view of the extent to which observed differences in principles of good corporate governance and in good business practices are linked to differences in systems of moral principles, they would appear to be justified in this expectation. Contributors to this volume raise a number of points that belong to the domain of the meta-ethical. Perceived connections between moral principles and good business practice are manifold and complex. One set of problems here results from variations in these principles among places and over time. Such problems become important as soon as discussion of the implications of Enron for principles of corporate governance and corporate ethics transcends a purely US context. Other problems concern the indirect or often tenuous relationship of moral principles to many business rules and behavioural norms.
In most cultures there is some convergence between ethical principles, legal rules, and norms. Murder, robbery and – in business – the more egregious forms of opportunistic conduct and self-dealing are not only regarded as immoral but also are illegal. But the convergence is less apparent regarding several other subjects. Think, for example, of mergers and acquisitions and anti-trust, insider trading on securities markets, prudential rules for banks and investment firms, accounting standards, and the admissibility of derivatives transactions. Much of the breakdown of corporate ethics and governance in the Enron case involves such subjects as these.
Indeed, Partnoy, writing about Enron in 12 Overview of the Book 2003 has even characterised much of Enron’s behaviour as ‘alegal’ rather than ‘illegal’, in that it involved transactions increasingly accepted by many of Enron’s peers, and for which regulations were often still hazy (Partnoy, 2003, p. 298). The rules and norms of business can be characterised as a tissue with features reflecting many different determinants such as best and customary practice, compatibility with the rest of a country’s legal framework, more general social norms, accommodation of innovation of different kinds, and prerequisites for fair dealing between different participating parties.
As noted above, only some of these rules and norms have a close connection to moral principles. The justification for many others is the greater good of society because of their place in a larger system that contributes to enabling and facilitating good management and the interactions between economic agents upon which economic activity and material welfare depend. In some cases, moral principles usefully supplement or reinforce such rules and norms, and help to foster their observance. But their very generality often mean that they are an inappropriate starting-point for detailed prescription, as do the ambivalence and socially counter-productive nature of their implications for conduct in certain situations. 0 Moreover, basing business rules and norms on moral principles would often render them less adaptable, and thus less responsive to changes in the situations with which they are designed to deal. But while too close and too comprehensive connections between business rules and norms, on the one hand, and moral principles on the other are neither feasible nor desirable, at a certain remove the influence of the latter is still powerful. A key concept here is fair dealing (even though historically and in different cultures there has been considerable variation in what is accepted as ‘fair’). Essential to fair dealing is trust, and trust in turn is important in enhancing the quality of economic agents’ mutual relations and thus also of business practices.
Etienne Perrot acknowledges in Chapter 5 that different possible ethical principles and frameworks can be applied to participants in the Enron case and serve as pointers to improved standards for business conduct. These include the attribution of special importance to trust and to frameworks incorporating group conventions and solidarity. The latter he views as being an inadequate source of improved standards because of the precariousness of the behavioural equilibrium thus achieved and to the probability of consequent over-emphasis on procedure rather than substance and the consequences of actions. He would rather base the ethical framework for good business practice in what he calls the ethics of individual conviction.
This in turn should incorporate the capacity to perceive the different dimensions of situations (their complexity) and different possible approaches to them as well as an understanding of the interests of and the effects of actions on others (not only those belonging to one’s own group or culture but also Andrew Cornford 13 broader communities). If such a framework is to become effective, the reminding people of ethical principles on its own will not be sufficient. A deeper exercise on the self will be required – what Perrot calls ‘training in self-esteem’. In Chapter 6, Edward Dommen tackles issues raised by the increased anonymity of much business life (which is also a concern of Monnet with regard to many of the products of financial innovation) and the trust essential to good practice. For this purpose he deploys a taxonomy of different meanings of anonymity, showing the ways in which it can have positive as well as negative effects.
Drawing on his knowledge of Quaker history, he points to the way in which the shared values of a community can guarantee trust and the associated sense of fairness in business activity, obviously first and foremost among the community’s own members but also to varying degrees among those drawn into its orbit as the members’ counter-parties. This general point has ample support from other evidence. In his fascinating history of derivatives, beginning with their origins in the second millenium BC, Edward Swan, a pioneer practitioner of derivatives law, documents the analogous role played at various times by other communities and communal institutions in ensuring fair dealing (Swan, 2000, sections 2. 4. 1, 2. 4. 3, 4. 6. 1).
These have included temples as clearing houses for commodity trading and the institution of a karu or community of foreign merchants beyond the gates of cities in ancient Mesopotamia, separate merchant communities called pandokien in Ptolemaic Egypt, and the self-governing fondachi serving similar purposes in Italian mercantile cities of the Middle Ages. However, as Dommen notes, communitarianism provides only a partial basis for an ethical framework of business life, where distance has become an unavoidable characteristic of both transactions and other interactions among different parties, including the weakest and most disadvantaged, who are clearly a part of the ethics of individual conviction advocated by Perrot. Variation in moral frameworks for business ethics helps to explain the complexity of the task of reaching international consensus on the principles of corporate governance and ethics needed for global business and finance, and the slowness with which the process moves forward.
Different ethical and religious beliefs, as well as different histories and legal systems, are inputs to this process. Achieving acceptability for the results of such a consensus is a prerequisite for its effectiveness, and slow progress is surely a price worth paying. Notes 1 This point is made still more starkly in Partnoy’s testimony to the United States Senate in early 2002, where he shows from an analysis of the consolidated income statement of Enron and its subsidiaries for 1998–2000 that its positive operating income was largely made up of profits from its derivatives business. See Testimony 14 Overview of the Book of Frank Partnoy, ‘Hearings before the United States Senate Committee on Governmental Affairs’, 24 January 2002, pp. 27–9.
The phrase is from Partnoy’s testimony, ibid. , p. 11. A more detailed description of these features of Andersen’s culture can be found in the book by a former employee (Toffler and Reingold, 2003). A report by Arthur Young on the intensification of competition among accounting firms from the late 1970s onwards (quoted in Berenson, 2004, p. 114) brings out graphically the consequences of Travis’s point, as follows: ‘No longer do accountants compete solely on the strength of their capabilities. Today, every accounting firm … competes with every other accounting firm in its market area for clients present and future, for attention, for exposure.
Accounting firms compete with each other presentation for presentation, press release for press release, speech for speech, seminar for seminar, and increasingly, ad for ad. ’ These debates are usefully summarised in Flegm (1984). For the summary totals see Houston Chronicle, 27 January 2005. The principal sources consulted for individuals mentioned were the superseding indictment of Lay, Skilling and Causey of 7 July 2004; the superseding indictment of Bayly, Boyle, Brown, Fuhs and Furst of 14 October 2003; the indictment of Fastow of 31 October 2002; the indictment of Arthur Andersen of 7 March 2002; the SEC complaint against Kopper of August 2002; the plea agreements of the Fastows of 14 January 2004; the plea agreement of Glisan of September 2003; and the plea agreement of Duncan of 10 April 2002.
Other sources used were ‘Andersen the fallout’, Financial Times, 17 June 2002; ‘Skilling indictment’, Financial Times, 20 February 2004; J. Chaffin, ‘Enron executive expected to plead guilty’, Financial Times, 31 October 2003 (on Delainey); ‘L’ancien numero deux d’Enron inculpe par la justice americaine’, Le Monde, 21 February 2004 (on Skilling); ‘Le premier proces penal d’anciens dirigeants d’Enron debute a Houston, au Texas’, Le Monde, 22 September 2004 (on the Merrill Lynch bankers, Boyle and Fastow); K. Scannell and J. Weil, ‘Supreme Court to hear Andersen’s appeal of conviction’, The Wall Street Journal, 10 January 2005; R. F. Duska and B. S.
Duska, ‘Enron, Arthur Andersen, and the financial markets: a chronology of Wall Street Journal articles’, Accounting Ethics (Oxford: Blackwell, 2003); Toffler and Reingold (2003), ch. 9. J. Kay, ‘Corporate character is not just a legal construct’, Financial Times, 7 December 2004. See, for example, ‘Bankers Trust International v. PT Dharmala Sakti Sejahtera’ (a case involving an Indonesian entity in 1994), ‘Lehman Brothers Commercial Corp and Lehman Brothers Special Financing Inc v. Minmetals International Non-Ferrous Metals Trading Co. ’ (a cas