In our analysis of the damage the Enron debacle has done to the
reputation of the accounting profession (opposite page), Lou Thompson,
president of NIRI, correctly asserts that more disclosure will achieve
little if corporations continue to use questionable accounting methods
to remove debt from their balance sheets. He also comments that as the
SEC has not - yet - changed the regulations governing disclosure in
response to the Enron collapse, the daily duties of the IR pro remain
unchanged. Technically, this too is correct.
But the fact is that it would be a flippant IR or PR pro who didn't,
right now, give serious thought to the implications of the Enron case
for their clients and their jobs. Much like September 11 will leave an
indelible imprint on the US psyche, so too will history's biggest
bankruptcy color the way business is done, and perceived, for years to
Much has been made of the impact on accountancy firms, but the fallout
threatens law firms too, with the chummy client partnerships so
celebrated by the biggest players in both professions suddenly seeming
Analysts, though they seem to have escaped the media scrutiny suffered
by the accountancy profession, have also suffered a major blow to their
reputation. As one agency CEO, and previously confident investor, puts
it: "I had a lot of Enron stock, and the analyst for my broker kept
backing it, even after the early revelations started to leak out. Like
many others, I'm left wondering whether I can trust the analyst."
Banks have not escaped without criticism, and even Wall Street darlings
such as GE are suddenly under the microscope, with The Wall Street
Journal devoting considerable space, on the front of its Money &
Investing section, to explaining how the monster conglomerate may be
guilty of offsetting restructuring costs against asset sales to create
the appearance of smooth earnings.
If GE can get caught in the crossfire, anyone can. As BusinessWeek puts
it: "The scope of the Enron debacle undermines the whole credibility of
modern business culture."
In this changed environment - and yes, we are talking changed
environment - the PR pro's role becomes even more crucial. Investors,
particularly nervous private ones, will look for transparency from the
businesses into which they plow their hard-earned cash. And analysts
will be even more nervous about backing stocks of corporations whose
balance sheets they don't really understand. That places more emphasis
on the IR pro's ability to cut through financial complexities and
produce clear results statements.
Only through transparency will businesses regain or retain
In addition, it raises the question of the IR person's duty. Naturally,
IR people are not liable for the information they disseminate, but they
must assume some responsibility for their output. It would be
unrealistic to expect them to contravene the CFO's wishes, but they
should at least be prepared to challenge obfuscating tactics and
question impenetrable presentations or statements.
And it highlights, yet again, the need for accuracy over hyperbole in a
corporations' communications. Credibility is at a premium right now, and
the PR pro's primary job is to guard that credibility. Encouraging
transparency and insisting on honesty should be fundamental tenets for
everyone in the business of communications.