Nov. 27, 2002 -- It was just one year ago that Enron, a once high-flying Houston-based energy colossus, became a household word for massive corporate failure.
Thanksgiving Day marks the one-year anniversary of the day that Enron's credit rating was downgraded to junk bond status, prompting rival energy producer Dynegy to back out of its proposed merger with the company. Panicked investors sent Enron's share price below $1, and the company filed for Chapter 11 bankruptcy just four days later.
Enron's downfall stemmed from multi-million dollar losses the company reported in October 2001, partly related to off-balance sheet partnerships run by former Chief Financial Officer Andrew Fastow.
The company's demise was not only notable for the well-publicized financial damage its workers and investors suffered, but also because it was the first in a long line of corporate scandals from companies like WorldCom, Adelphia, Global Crossing and Tyco that have rocked U.S. financial markets and investor confidence in the past year.
So one year and countless corporate scandals after Enron, can corporate America be trusted again? While experts say that government and financial institutions have made steps in the right direction, others say there is still much to be done before restoring investor trust.
"Just the fact that there is more awareness in every sector about issues of corporate responsibility and accountability is a good thing," said Mike Lux, president of American Family Voices, a Washington, D.C.-based advocacy group for low- and middle-income families. "Having said those happy things, we still have an enormous way to go."
Pricey Toll on American Workers
To be sure, corporate scandals have taken a heavy financial toll on the American public.
Labor union AFL-CIO estimates that workers have lost $1.5 trillion from their retirement savings funds since January of 2002.
Further, thousands and thousands of workers have lost their jobs. Some 4,000 Enron employees were let go after the company declared bankruptcy. The AFL-CIO estimates that 28,500 workers have lost their jobs from Enron, WorldCom and accounting firm Arthur Andersen alone.
"I think [Enron] was one of the more spectacular discouraging events," said Don Cassidy, senior research analyst at Denver-based mutual fund tracker Lipper. "Plainly, a lot of mutual funds got caught with that one and WorldCom."
Perhaps the biggest move the Bush administration has made to calm investors' nerves was the passage at the end of July of a sweeping corporate crackdown bill that, among other things, added criminal penalties and prison terms for corporate fraud and document shredding, imposed restrictions on accounting firms that consult for companies whose books they audit and required top company executives to personally vouch for the accuracy of their companies' financial statements.
The investment community has also tried to put its own safeguards in place to ensure good corporate governance. The New York Stock Exchange approved new standards and changes in the corporate practices of listed companies this summer, which includes requiring its listed companies to keep a majority of independent directors on their boards.
"It's really shifted the balance of power between the CEO and the board," said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "There's a public acceptance from the positive impact of good corporate governance."
Is Bush's Crackdown Enough?
But while most experts see the government's legislation as a positive step, developments since then have cast a shadow on the government's efforts to crack down on corporate misdeeds.
Former Securities and Exchange Commission chairman Harvey Pitt stepped down earlier this month amid revelations that he did not share controversial information about William Webster, a former CIA and FBI director who was named head of the newly formed accounting oversight board.
Now the SEC is not only without a chairman, but the accounting oversight board — set up as part of Bush's corporate crackdown legislation — lacks leadership as well.
"Passage of the [corporate crackdown] bill is obviously a good step but now things are more in limbo because you don't have a head of the SEC, you don't have the head of the oversight board and it's not functioning at its full capacity," said David Certner, director of economic issues for the AARP, formerly known as the American Association of Retired Persons.
Others point out that many issues remain unresolved for corporate America. Among those, excessive executive compensation — which has been in the spotlight thanks to the lavish pay packages of the likes of former Tyco chief executive Dennis Kozlowski and ex-WorldCom CEO Bernie Ebbers — is still a hot button topic for many critics.
The Conference Board recently proposed a series of wide-ranging reforms on executive compensation, including making executives give advance notice of their stock sales and greater disclosure of employment agreements.
Former Workers Still Suffering
For those workers who were laid off from Enron, the progress that business and government have made is small consolation for what they've had to go through in the past year.
At a press conference this week hosted by the AFL-CIO, former Enron workers described their struggle to make ends meet as they looked for work. Even though a bankruptcy judge approved a $13,500 severance payment for former Enron employees, it's a far cry from what the workers lost in salary and pension benefits.
"That was more than what we had and we were grateful for that," said Debra Johnson, a former senior administrator with Enron who lost $52,000 in her retirement fund. "But we've got employees that have lost millions of dollars."
Further, justice has been far from swift for former Enron executives. Although former CFO Andrew Fastow has been charged with 78 counts of conspiracy (for which he has pleaded not guilty) and another former executive, Michael Kopper, pleaded guilty to laundering and wire fraud last summer, others like former CEOs Ken Lay and Jeffrey Skilling have not seen any charges.
But the former Enron workers who spoke this week say punishment for former Enron executives was not their primary concern.
"I don't care if they send Ken Lay and Jeff Skilling to jail, they should return what they've stolen from us," said former Enron employee Jessie Patterson. "Andrew Fastow being indicted does not help me at all. It's all about getting back what they stole from us."