Beware Enron Wannabes

Jeremiah J. O'Connor, International Secretary-Treasurer

What happened at Enron is scary.

Immediately, it’s a horror story for the workers at Enron and its subsidiaries, including IBEW members of Local 125 who had their 401(k) retirement savings accounts frozen by Enron to prevent them from selling at a time Enron executives were selling their shares, salvaging something in the critical period when Enron stock dropped from $32 in October to $9.98 on November 12, when the freeze ended.

A year ago a share was worth $87 in Enron’s high-flying days of concealing its financial status. Then, CEO Kenneth Lay was being fawned over by stock analysts and the news media alike and, thanks to Enron’s astronomical political campaign contributions, Lay was on his way to exercising veto power over federal regulatory appointments by the new Bush-Cheney administration.

But the scariest part is the longer range. How many more companies like Enron have built a phony castle of stockholder equity? The problem with Enron, says that tell-it-like-it-is Texas columnist Molly Ivins, is that it is a “parasite that has never produced much of anything in the way of either goods or services; not adding a single widget to the world widget supply.” I seem to recall that the IBEW has been saying something similar about Enron—and utility deregulation in general—since 1993.

Fifteen years ago, Enron was a world leader in natural gas and pipelines. But, says Sen. Byron Dorgan (D-ND), they “morphed into a trading company involved in hedge funds and derivatives, took substantial risk, created secret off-the-books partnerships and, in effect, cooked the books.” Enron emerged as what one Senate witness called a “black box” company, in which no analyst nor institutional or individual investor knows precisely how the company makes money.

To keep their clients, auditors will even say things as stunning and amoral as the statement at the Enron hearings that “Related Party Transactions” is an acceptable accounting practice. That’s the category, a footnote with no details, under which Enron executives hid their side partnerships and with them the debts that were instrumental in the collapse.

On the pages of past issues of the Journal and elsewhere, President Hill and I have described the role Enron played in orchestrating the disaster in electrical service in California and then—in a prize-winning display of chutzpah—told lawmakers that further deregulation was the cure for the problem. As recently as our convention, Ed cited the threat to IBEW utility members from “the greedy profiteering of generating companies, among them Enron and other Texas-based friends of the Bush/Cheney Administration.”

The AFL-CIO estimates that the manipulators at Enron cost every American something—perhaps an 0.5 percent loss for every worker who has retirement savings in a 401(k) or IRA. That’s because so much money is invested in mutual funds and index funds specifically designed to mitigate the risk of investing too much in any single company.

Right now the sheriff has arrived at Enron and there will be shakedowns and searches by Congress, the Securities & Exchange Commission and private investigators into why and how this mess happened. Possibly they’ll prohibit auditors from consulting for companies they audit and from conducting independent audits of their own internal audits—the equivalent of judges hearing the appeal on their own cases.

We know you can’t legislate morality, passing a bill that wipes out corporate greed, arrogance and deception. Our weapon will be our own vigilance, in every agreement we bargain, in every investment we make on behalf of our members and in beating the drums loudly every time we spot an Enron in the making.