| 26 May 2006 SOX I heard the word in the afternoon, sometime before the two o'clock meeting on Security. The jury in Texas convicted Jeff Skilling and Ken Lay on all counts in the Enron melt-down. I was happy to hear it. They were thorough-going bastards. There had been a book about the Enron management team. “The Smartest Guys in the Room,” was the title. I did not buy it or read it. I don't have time. I think I got the point in the reviews. Jeff and Ken considered themselves part of an entirely new way of doing business; if not above the law, certainly one unto themselves. I don't mind that gambles sometimes fail. That is what makes the game so interesting. I picked a career that had a certain amount of risk built into it, but it also had a financial safety net. It was not a lavish one, but it existed, and it was part of the deal with the Government. In consideration of going to strange places and doing odd tings, they would pay you if you were killed or disabled, and there was a modest pension at the end. That was what Jeff and Ken destroyed for their employees. They made promises on pensions, and made those promises contingent on the value of the stock. They looted the operating funds of different parts of the company and placed debt “off the books.” They were still swearing that everything was fine up to the moment it all unraveled. I had a moment to consider that, since the man coming to town to talk about Security was delayed by the power failure. The company had hired him out of a senior technical position in the Administration. I wondered about that, leaving a government job for the risk of the private sector. It can be a gamble. He had boarded a train in New Jersey at seven o'clock sharp. The Company used to authorize business class on the train, or at least they did when there was still money for people like me to travel. On the high-speed Acela train the journey takes just over three hours. Shortly after eight, circuit-breakers began to trip off the line outside Baltimore, and within a few minutes, every electric-powered train between the Capital and New York glided to a stop. Some of the trains stopped in tunnels in total darkness. Amtrak was aggressive about rescuing passengers, Our Security guy had been picked up by a diesel train that pulled alongside like a lifeboat, a joyful thing, until the high-speed passengers realized the rescue train was going to stop at every platform the rest of the way to town. Power was restored a hour or so later, and the rescued passengers saw the Acela they had originally been on go flying past, completely empty. It was one of those unintended-consequence things. To rescue the passengers, the railroad had to delay them more than if it had done nothing at all. It is very much like Congress and the mess that Ken Lay made. The Enron fraud was perpetuated by “innovative accounting procedures.” The supposedly independent accounting firms that were responsible for examining the books were actually in cahoots with Enron. The same sort of cozy relationship also existed at WorldCom and other major businesses that failed. Congress was under great pressure to take action. That is the time to be most afraid of your democracy. Right now, the Congress is under great pressure to take action on immigration; we are likely to see highly-pressured law as a result. In the case of Enron, we got a law named for its Congressional sponsors, Senator Paul Sarbanes, D-MD, and Rep Mike Oxley, R-OH. The Senate passed the measure 97-0. They had to look decisive. Throughout the American corporate world, the act is now known by it's abbreviation, SOX. And we are trying desperately to be SOX compliant, even if no one is really sure what that means. I am informed almost daily that all my e-mail is subject to discovery, and that I must keep detailed records of everything. To ensure there is no accounting hanky-panky, SOX effectively requires all audit-and-consulting-services be duplicated to some degree. The financial watchers are in turn watched by someone else. There are intrusive reporting requirements to ensure that conflict of interest, wherever it might exist, is rooted out and squashed. All of that redundant superstructure costs money, and is pure overhead. It makes us all more inefficient and less productive. For example, my closest approach to anything like financial conflict is whether I should get out of bed in the morning, or just roll over and go back to sleep. Normally, my need for continued financial resources prevails. There doesn't appear to be any limit to the record keeping requirements, and we regularly attend mandatory training on ethics and records retention. The burden is so massive that many companies that don't have to operate here are avoiding it altogether, and establishing themselves in London, where they don't have to wear SOX. It would all be surreal if my company had not rented office space that had once been occupied by the accounting firm of Arthur Anderson. They enabled Ken and Jeff roll up a $60 billion dollar default, and a share-holder loss of something close to $200 billion in net worth. Visiting the vacant office to scout out the best offices was an eerie experience. Looking back, I wonder if it was a premonition. No one had been in the sprawling complex for months, and the dust was thick in the interior cube-farms. Names were still posted prominently on the doors to the outer offices with the good views. Most of the papers were gone, shredded, I imagine, in the last desperate moments before that company imploded. It was scandal frozen in time. You could almost smell it. It didn't occur to me at the time that the ripple effect from the Enron collapse would roll through the accounting firms, and wind up as a colossal burden on every other company trying to do business. That is one of the reasons the Security guy had been hired, to keep our data safe, and our records in order. All thanks to Mr. Skilling and Mr. Lay, the Smartest Guys in the Room. It was a pretty good meeting, but the Security guy kept looking at his watch. He didn't have complete confidence that his train was actually going to get him home. I walked back to the office to ensure that all my data was backed up before I left for the day. I hope the railroad takes action and fixes the problem before Congress feels it has to do something. Then I realized that the railroads were one of the first institutions Congress began to regulate. No wonder. Copyright 2006 Vic Socotra |