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Wednesday, 16 October, 2002, 07:29 GMT 08:29 UK
Enron's legacy lives on

Enron's collapse was sufficiently shocking to usher in a revolution. One year after Enron's troubles were first exposed, BBC News Online reviews the changes that have swept through corporate America.

Exactly a year ago, investors, analysts and journalists smelled the first whiff of trouble.

A mysterious $1bn hole had appeared in the accounts of Enron, an apparently mighty firm, best known for scooping up awards.

Now everybody has to prove they are not a terrorist before selling shares

Alan Reynolds, Cato Institute
Just weeks later, one of America's biggest and most revered firms had collapsed as quickly as a pack of cards, its finances built on a pack of lies.

The smell quickly turned from bad to evil, with the Bush administration, top banks, lawyers and accountants all accused of colluding with the enemy.

As investigators dug deeper, shady dealings appeared at a host of other firms.

Public outrage was pushed to new peaks by revelations that executives made millions of dollars by cashing in on their own shares while ordinary investors lost everything.

Texans opt for change

The combination of such public anger and blatant corporate crime has beckoned in a revolutionary era of change.

The road to ruin
16 Oct 2001:
$1bn hole emerges
22 Oct 2001:
SEC inquiry
8 Nov 2001:
Profits restated
2 Dec 2001:
Bankruptcy filing
9 Jan 2002:
Criminal inquiry
21 Aug 2002:
Worker's first guilty plea
2 Oct 2002:
Finance chief charged

That wind of change has even managed to penetrate Texan culture, where the Houston baseball stadium has ditched the E-logo in favour of an orange juice sign.

The reforming zeal has not stopped short at the door of politics, and the White House will no longer be funding its political campaigns from the depths of company coffers.

(Once the mid-term elections are over, that is.)

Meanwhile, thousands of secret documents detailing the contact between several senior White House officials and Enron are still being examined, with casualties expected - eventually.

Bearing up

But it is corporate America that has felt the full force of the changes.

That broad sense that there will be some level of holding them [executives] accountable no longer exists

Scott Harshbarger, Common Cause

Prison sentences for wrongdoers have increased, listed firms have been made to swear to the accuracy of financial statements, and the once-mighty auditor Andersen has disintegrated.

A new independent body has emerged to keep tabs on accountants, Wall Street firms are promising not to offer biased advice, and bonus stock options have fallen out of fashion.

Experts pore with glee over such tweaking of corporate governance.

But such changes can offer little comfort to those left with a large hole in their bank accounts.

Suffering in silence

"The frustration is that we are still not hearing the voices of the people," says Scott Harshbarger, president of Common Cause, a left-wing think tank.

And justice has not been done.

"The executives have yet to be disgorged of their ill-gotten gains," he says.

The road to change
27 Mar 2001:
Bush signs campaign finance bill
14 June:
New rules for financial analysts
18 June:
SEC announces new accounting body
26 July:
Congress passes anti-fraud bill

"That broad sense that there will be some level of holding them accountable no longer exists."

Unsurprisingly, America's investors are more than a little reluctant to get their fingers burnt again.

"It's akin to terrorism," says Alan Reynolds, an expert on corporate governance at the Cato Institute.

"One set of people deliberately plotted to break all the rules and commit a terrible crime.

"Now everybody has to prove they're not a terrorist before selling shares."

Running scared

The crisis of confidence in America has wreaked havoc on the wider business climate, intensifying the spectre of a recession.

Business is afraid to take risks, afraid to make the much-needed investments

Alan Reynolds, Cato Institute

"Business is afraid to take risks, afraid to make commitments, afraid to make the much-needed investment decisions," says Mr Reynolds.

The more aggressive regulatory environment, together with the threat of litigation is making it difficult to recruit high-level executives, he said, underlining the fear lingering in boardrooms.

"This anti-corporate frenzy is very worrying, and often illogical," says Kevin Hassett, a senior economist and scholar at the right-wing American Enterprise Institute.

The difficulties of using correct accounting methods for joint ventures means they are drying up, venture capitalism is falling, some firms will be afraid to go public altogether, he explains.

Winning investors back

On top of all that, there is the increased cost of the regulation, a cost that business is bearing.

But, given the amount of public money lost and the depths of corruption, sympathy is clearly not on the cards.

And the reforms were obviously needed.

But firms will continue to suffer until they work out how to regain the confidence of investors.

And no amount of reforms or regulatory change has succeeded in wooing them back - so far.

One year on, the legacy of Enron continues to terrorise corporate America.

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