Thursday, May 08, 2003

Divine Right Of Capital - Dethroning The Corporate Aristocracy
Change begins in the mind. In a collective sense, social change unfolds into reality through historical moments – through times when the public consciousness cracks open and new ideas can rush in. Financial crisis is one way such an opening can develop. With the Enron affair, it would seem that we’ve had the perfect financial storm – with turbulence patterns converging from Arthur Andersen, WorldCom, Global Crossing, Tyco, Dynegy, Adelphia, and the rest.

We might have seen it coming. In my book The Divine Right of Capital -- published just months before the Enron crisis --I wrote that when the system design is unsustainable, crisis becomes likely. And I observed hopefully that crisis can be useful, since it cracks open the collective consciousness, leading the public to demand reforms it might have resisted before. I recalled Roosevelt’s legendary first 100 days during the Great Depression, when he was able to enact a host of powerful New Deal laws. "This kind of opening for change," I wrote, "may come again."

And so it has. Our moment for change has come – and it seems to have gone. But for a time there it seemed that something might actually happen. The year 2002 saw campaign finance reform, new criminal penalties for CEOs filing false financial statements, a new accounting supervisory board, new stock exchange rules about board independence, and a substantially increased budget for the SEC. In the wake of a felony conviction, the accounting firm Arthur Andersen disintegrated virtually overnight. To avoid similar troubles, other accounting firms spun off their consulting divisions. Energy firms, faced with charges of fraudulent trades, went under or closed their trading divisions. With stock options seen as a key culprit, many companies began expensing them without waiting for a legislative mandate. Countless businesses restated financials, as the wave of fear swept through the business community.