April 10, 2002
In a new report, United for a Fair Economy reveals that Enron's business practices are widespread. The report lists 10 legal but pernicious corporate habits and lists the companies that best exemplify Enron's harmful behavior in each area.
Download the Report (PDF, 475 KB)
"Titans of the Enron Economy: The 10 Habits of Highly Defective Corporations," a new report by financial analyst Scott Klinger, reveals that key maneuvers leading to Enron's meltdown are legal and widely practiced.
The report ranks the worst companies in 10 categories and gives Enny Awards to companies that exemplify Enron's harmful behavior in each area. The 10 habits encompass profits won through political influence, corrupting the watchdogs, tax dodges, undue risks for workers and excessive rewards for executives.
The Enny Awards winners are COCA-COLA, CITIGROUP, EMC CORPORATION, AOL TIME WARNER, RAYTHEON, BOEING, LUCENT, HALLIBURTON, WORLDCOM, and the financial services industry, represented by CITIGROUP and MBNA.
A special Lifetime Achievement Award goes to General Electric for scoring the highest average rank across all 10 bad habits, the only company to outrank second-place Enron. GE exceeds Enron's score by an astonishing 45%.
Much of the 1990s stock market boom was fueled by Enronesque accounting tricks that are perfectly legal. More than a third of corporate earnings growth from 1995 to 2000 stemmed from the practice of not treating stock options as expenses. For example, Lucent's earnings would have been reduced by 30% from 1996 to 2000 if stock options had been expensed. Corporate political contributions and lobbying encouraged lax rules, with Enron's price-gouging energy deregulation being only one example.
To break the 10 bad habits, the report proposes a 12-Step Recovery Program: stronger disclosure requirements, independent auditors and boards, rotating auditors, progressive corporate taxes, diversified retirement accounts, earnings statements that expense stock options and exclude pension fund gains, balancing the interests of stakeholders, limits on government subsidies of foreign investments, banning company loans to executives, and ending taxpayer subsidies for excessive CEO pay.
All 10 Enronesque habits and distinguished Enny Award winners are illustrated with glaring examples in the report.
AND THE ENNY GOES TO...
1. Retirement funds full of company stock... COCA-COLA
2. Excessive CEO pay... CITIGROUP
3. Massive layoffs while executives make millions... LUCENT TECHNOLOGIES
4. Cozy insider boards... EMC CORPORATIONS
5. Excessive board compensation...AOL TIME WARNER
6. Auditors whose consulting contracts create conflicts of interest...RAYTHEON
7. Hefty political contributions to buy access... The financial services industry; Accepting the award for the industry are CITIGROUP and MBNA
8. Lobbying for legislative favoritism... BOEING
9. Corporate welfare to finance dubious overseas investments... HALLIBURTON
10. Avoidance of corporate taxes... WORLDCOM
Scott Klinger is co-director of Responsible Wealth at United for a Fair Economy. A Chartered Financial Analyst, Klinger previously was an investment officer at United States Trust Company and vice president at Franklin Research and Development.
United for a Fair Economy is a national, independent non-profit that spotlights growing economic inequality and advocates solutions for shared prosperity. The report is available on the web at www.FairEconomy.org. Hard copies are available upon request.
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