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ENRON was not a problem when those gathered for the 2002 Medinge retreat-Thomas Gad, Sicco van Gelder, Nicholas Ind, Tim Kitchin, Chris Macrae, John Moore, Anette Rosencreutz, Lars Rystadius and the author-initially began writing their views on moral branding or corporate transparency. In many cases, their work could be said to be prophetic, warning readers about the lack of accountability in commerce, the conflicts of interest that existed, the ignorance of proper branding while corporations made the right noises but were never sincere about following them up.
Enron was winning awards for corporate social responsibility. As Marjorie Kelly wrote in Business Ethics: (1) As professor Sandra Waddock of Boston College Carroll School of Management noted in an unpublished paper, Fluff is Not Enough, Enron rang all the bells of CSR. It won a spot for three years on the list of the 100 Best Companies to Work for in America. In 2000 it received six environmental awards. It issued a triple bottom line report. It had great policies on climate change, human rights, and (yes indeed) anti-corruption. Its CEO gave speeches at ethics conferences and put together a statement of values emphasizing communication, respect, and integrity. The company's stock was in many social investing mutual funds when it went down. It tied in well with the opening comment during Macrae's session, which went along the lines of: if 20 per cent of the worst performers in a corporation were to be replaced, then after 10 years one would have a company filled with the best liars. The thought of more than 50 of the world's 100 largest economies being corporations raised the question, 'How many more Enrons can the world take?'
As with their counterparts in other commercial sectors-bodies ranging from chartered accountants to President George W. Bush's call for corporate responsibility-there were parallels at Medinge, which was held just as Andersen went to court over its conduct in the wake of Enron, and WorldCom rumbles began. The signs should have been more apparent. Mobile phone company Orange, for instance, generated more in advisers' fees than it had ever historically made through the 1990s' mergers and acquisitions. Analysts were expected to toe the line on Wall Street, when the ratio of buy to sell recommendations went from six to one in the early 1990s to 100 to one in 2000, despite the S&P declining 10 per cent and the Nasdaq fell 60 per cent. Less than one per cent of 28,000 recommendations issued by brokerage analysts between late 1999 and 2000 called for investors to sell. (2)
When CAP Online predicted a market decline, analysts missed it: Breakingviews' Edward Chancellor concluded that 'if an investor had acted contrary to analysts' advice, his portfolio would have outperformed the market by nearly 80 per cent.' (3)
The problem is widespread enough. By September 2002, Fortune would be examining J. P. Morgan, Chase and Citigroup going to court because of their involvement in Enron, World-Com, Tyco, Qwest and Adelphia. Among author Creswell's introduction are these words respecting the Bill of Rights' principle of innocent till proven guilty: (4) Whatever business matters may underlie their behavior, the most serious issue for [Citigroup and J. P. Morgan] may be reputational. They appear to have loaned money with really caring whether their clients could pay it back. They appear to have leveraged their balance sheets to get investment banking business from their borrowers. They appear to have behaved in a guileful way and helped their corporate clients undertake unsavory practices. And they appear to have had an entire division that, among other things, helped corporations avoid taxes and manipulate their balance sheets through something called structured finance, which is a huge profit center for each bank. University of San Diego School of Law professor Frank Partnoy said to Creswell, 'With Enron, Citigroup had no incentive to monitor whether Enron would repay its debts because it had shifted the risk away.' (5)
The problem is industry-wide, not restricted to a single organization. Yet the solution appears to lie in branding, being the tool that can make shifts in corporate culture and reinforce them to all stakeholders in the organization, be they directors or employees. New procedures within organizations do not help because the fundamental culture has not changed; everyone remembers why the procedures exist and they are only a faint paint job on rusted metal. Laws cannot help either because they appear half-hearted or they force compliance, whereas branding should, in its purest form, inspire people to follow a corporate credo freely.
There has been enough history, even in Confucius's day - a recurring topic of the author that was presented at Medinge (6) - to show that people can circumvent laws but would not curb their own freedoms. It is also a fallacy to believe that the human race has become gradually more civilized, taking the financial system from inter-village barter to global capital movements, when the same problems affected the world prior to the Great Depression, and which spurred the New Deal legislation. That time, the practices that were frowned upon were financiers' profiteering, decline of investment research, flogging of poor securities and poor corporate structures being sustained. The game was the same at the close of the 20th century, just in a moderately different form.
Globalization and movement of capital were great forces at the turn of the twentieth century, with companies such as Singer exporting its sewing machines, opening new markets. The movement of labour was immense because of the Industrial Revolution, e.g. 60 million Europeans left for the Americas, Oceania, east and south Africa between 1815 and 1914. (7) Empires were international trading blocs. If the reform of the 1930s failed to protect millennial investors, then how will the reform of the 2000s? Chancellor notes that research departments have not become independent from investment banks, for example. The culture that he wrote of - a Morgan Stanley memorandum to staff, including research departments, in 1992 read, 'we do not make negative or controversial comments about a client as a matter of sound business practice' (8) - appears unshifted. Governments themselves remain preoccupied with finances more than social issues and even the war on terror opens up possibilities in Afghan oil fields for Big Oil. (9)
While the same issue of Fortune suggests that universities are teaching post-Enron courses, (10) commerce needs a solution now. The tools are right under our noses but they are ignored because of branding's misperceptions, something that has plagued the industry for years. (11)
- Kelly: 'The next step for CSR: building economic democracy', Business Ethics, summer 2002, q.v. the summary by Waddock: 'Fluff is not enough-managing responsibility for corporate citizenship', Ethical Corporation, February 2002, .
- Kanjorski, at US House of Representatives Subcommittee on Capital Markets, Insurance and Government-sponsored Enterprises: Analysing the Analysts: Are Investors Getting Unbiased Research from Wall Street?, hearing of June 14, 2001, opening statement, citing a report by First Call. Rep Paul E. Kanjorski is the leading Democratic Party member of the sub-committee.
- Chancellor: 'Millennial market', Prospect, November 2001, pp. 28 -33, at p. 30.
- Creswell: 'Banks on the hot seat', Fortune, September 2, 2002, pp. 79-82 (sic).
- Ibid., at p. 82.
- Yan: 'Confucianism and branding', to be published.
- Mittelman: The Globalization Syndrome: Transformation and Resistance. Princeton, NJ: Princeton University Press 2000, p. 59. It is not a huge number relative to the world's population - Mittelman states that labour flows were far greater after 1950 - but one should bear in mind issues of gender and transportation.
- Chancellor, op. cit., at pp. 29-30.
- Brower: 'The business', Prospect, November 2001, p. 42.
- Schlosser: 'Scandal 101: lessons from Ken Lay', Fortune, September 2, 2002, p. 52.
- See Ind: The Corporate Image. London 1992.
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