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January 19, 2003
REVIEWS: A culture built on lies
Meg Greenfield, a former editor of The Washington Post makes a stunning observation in her book Washington. She says: “The entire fabric of America’s political culture would become completely dysfunctional without lies.”
The Americans have a strange psyche. They find a certain kind of comfort in persisting with lies, be it politics, advertising, business deals or personal relationships. They expect and tolerate misinformation, deception and exaggeration in daily routines. But, no wonder, they often do get worked up if someone lies directly to them.
Living with lies is so common in America’s corporate culture that it is hardly a matter of remorse, much less a matter of conscience. In fact, senior executives of multinationals feel uncomfortable with truth. So, as a matter of faith, accounts books are frequently cooked in almost every corporation, tobacco firms never admit that nicotine is addictive even when it is scientifically proved, the airlines always insist that the flight is on time even when it is already delayed, the chemical firms have perfected the art of cover-up and never concede what they have done to the environment and public health.
All these corporations have the nerves to tell lies, spread falsehood and deceive the general public simply because they have little to worry about: there is an army of corporate lawyers to protect them. Big autos, big airlines, big chemicals, big pharmaceuticals and their likes have figured out how to drag out the court battles, keep the news coverage in control and get on with business. It is greed, not public good, that drives corporate America and Enron has emerged as a symbol of this culture.
But this culture has, of course, its limits and has, it appears, reached its saturation point. As a result, the corporations and their executives are now winning more enemies than friends. An ominous development, during the recent months, has been the loss of an ally whose partnership has been extremely crucial to their mega-profits — the investor. He has openly revolted against the corporation. He has never felt so badly betrayed; he was often kept in the dark when con-artistry was in full play. The investors were left out in the cold when frauds were being hatched and bankruptcies sought.
The book under review argues the case of the investors. it has been written by two leading businessmen. Having been a part and parcel of predatory capitalism for so long it is not an easy option for American investors to attack the very system that they survive and thrive on. But since the degree of betrayal has been too incredible and shocking for them, their voice of protest resembles too closely what the anti-capitalist activists say about capitalism. It is the same harsh language, same deep hatred and same radical phrases to the extent that one can misconstrue the book to be a work by some leftist ideologue.
However, the fact remains that about fifty per cent of American households support corporations by buying stock. But the level of trust they have placed in the corporate world by making investments has not been reciprocated by reliable information about the financial performance and the actual financial condition of the corporation. When pressed, the corporations and the politicians try to pacify the investors by creating the illusion of reform which either does not come off or is not enforced. And it is these illusions which have created space for various kinds of frauds.
The authors say: “Enron was the magician, we were the audience and we could not figure out how they made so much disappear so fast. Our concern now is how many more cases we will see over the next year”. While it is difficult to predict when and where the next scandal would emerge, there are signs that the companies have begun to bow to pressure from anxious investors. Unless the year 2003 passes without a scandal or big bankruptcy, any talk about reform or tightening of regulations may not prove much helpful in restoring investors’ confidence in the markets. It seems the legal action by shareholders who were robbed of trillions of dollars in recent frauds will drag on for a long time and could force more companies to go bust.
In the American media, business crimes of all hues have been on the back burner for a long time. Daily newspapers and business magazines do not like to highlight bad business news. It is the so-called positive stories that always claim larger space because stock market must present a rosy picture. Until Enron, business crimes did not receive the coverage they deserved, nor had Congress ever thought to apply resources in this area. Instead, powerful lobbies representing the business do a good job of preventing Congress from taking any action to check business crimes.
It goes without saying that when business leaders, their lobbyists, political supporters, auditors and public relations teams lie to the public about their performance and knowingly support the deceptions, they put investors at risk at a time when the latter have little protection.
The idea of giving protection to the investors — the kind of which corporations enjoy — has never gained currency among the lawmakers in the United States. Corporations, in an ironic contrast, are given ample opportunities to manipulate and manoeuvre. They can legally avoid paying millions in taxes for many years. They live in a maze of laws that protect their interests and almost make it impossible for others to penetrate their defences. They enjoy what some politicians refer to a form of “corporate welfare”. On the other hand, as the authors of this book rightly point out, the investors have no way of receiving a timely warning if a company was about to become either incompetent or criminal in conduct. They find out, like Enron employees and investors did, when it is too late.
And sometimes the deception is too deliberate and shameless. Only a couple of days before Enron declared bankruptcy, Lehman Brothers, a reputed consultancy firm, was recommending Enron share as “the best buy” to investors. The business intelligence gap shows that investors may never have the kind of alerts about business fraud that they deserve and should have for a long time to come. There is a distinct lack of specificity in the information they receive about market details and about business fraud.
As a solution, the authors suggest a business intelligence service to be created by investors themselves so that they are able to put their money in safe places. This could also be the basis of a new industry which meets the specific needs of information which the individual investor does not get from objective sources today.
How companies lie: why Enron is just the tip of the iceberg
By A. Larry Elliott and Richard J. Schroth
Crown Business. Distributed in Pakistan by Liberty Books (Pvt) Ltd, 3 Rafiq Plaza, M.R. Kayani Road, Saddar, Karachi. Tel: 021-5683026.
Email: libooks@cyber.net.pk
ISBN 0-609-61081-3
190pp. Rs1365
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