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The reporting of new corporate scandals has now become a repetitive, daily sore on society. Can anyone be trusted? Have we been fools to believe in what we have been told?

Enron, WorldCom and the Corruption of Society

by Brian Risman, Publisher www thelawjournal co uk - 21 July 2002

There is a crisis of confidence and of trust in the business world today. The scandals continue to multiply almost daily. Investor confidence is an oxymoron. As is secure pension investments. That is the issue -- as long as people felt their future was financially stable, any calls for reform fell on deaf ears. However, now that working people are feeling an unprecedented angst, social stability and the future of existing institutions is in question.

The word 'Enron' has become a synonym for accounting fraud and a general atmosphere of corruption. Enron has been followed by WorldCom that has been followed by .... and so this sorry story goes.

What is the problem? Is everyone corrupt? Can anyone be trusted?

Let us look at the issue of law. Why do laws exist? To protect the innocent and convict the guilty? To set parameters so that society can operate in a smooth, just and predictable manner? Or, as it seems now, to push boundaries beyond any reasonable concept of legality ?

Let us now look at the issue of trust. Can you truly negotiate a business transaction or deal with people if there is no trust? The law can set parameters and implied conditions to ease the process of negotiation, but if there is no trust there can be no agreement. If there are no agreements, then there cannot be a functioning society. If people cannot trust, how can they invest ? How can they live ? That is the core threat of the current crisis.

Now, a third issue -- is anyone above the law? We can make a case, of course, that certain public figures are not subject to normal prosecution. However, that does not cover corporate executives who feel that the law is for 'the little people.' Yet these 'little people' invest, and when their investment climate is in danger, turn as voters to the government for action.

A prominent business reporter recently referred to a rap song with the lyrics, "The rules are for fools."  That may be true given recent events. However, we "fools" are now reacting, taking our money elsewhere and demanding action from governments. However, the trust of government is running equally low given recent reporting and financial disclosures. So who can we "fools" trust?

It is interesting that business, in a rare stance, is looking to government to restore confidence. Government cannot restore confidence in a dishonest environment. Government can prosecute and can set down new regulations and laws. However, Government cannot make Business trustworthy.

Therefore, Business will have to 'heal thyself.' Business will have to confront its practices. From a legal perspective, there is no problem with a business attempting to achieve the best legal position possible. However, when that positioning stretches the bounds of legality a short term gain will be negated by a long term collapse. That is what we are seeing here. Accounting and legal rules were stretched or ignored to the breaking point.

Some of the suggested solutions raise more questions. For example, one measure suggested is to eliminate or at least reduce the stock incentives for senior executives. In that way, the incentive to take whatever actions, even illegal ones, to enhance the stock price would be eliminated.

Are these senior executives intelligent beings, or Pavlovian dogs responding to controlled stimuli?

These executives, senior or junior, need to realise that their actions will hurt them, since society will in the final analysis react against them. They need to realise that the famous phrase is not 'self-interest' -- it is enlightened self-interest. They need to realise that running a company is a public 'trust' (I use that term loosely, but in the context that society are the beneficiaries). A reasonable profit for the risk takers is acceptable. Unconscionable actions are not.

The bottom line is that the practices of the past cannot continue. The attitudes and ethics of Business, Government, and Society itself must change.

We can work to our personal advantage -- but not at the expense of the stability of Society itself.

Brian Risman

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