EDITORIAL: Nobody can ignore Enron implications

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

entirely inappropriate.

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.

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