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| Lessons From Enron By Louis Erlichman Canadian Research Director |
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| The financial collapse of U.S. energy giant Enron could provide some useful lessons for anyone who might be paying attention. First, as national and international liberalization strips governments of the ability to regulate or even monitor corporate activities, we are increasingly vulnerable to corporate scam artists, who don’t even have their shareholders’ interests at heart, let alone the interests of the broader public. So much for the corporate apologists, for whom the answer to every question is more freedom for corporations. The ease with which Enron bought influence in the Bush administration, and the compliance of the Anderson company, the supposedly independent auditor, in the scheme to keep stock values inflated, shows that we need to be vigilant even about those people who are supposed to protect us through external checks and balances for corporate conduct. The most painful lesson was given the Enron employees and others whose savings and retirement income were tied up in Enron stock. The first rule of savings investment is diversification – don’t put all of your eggs in one basket. Rarely do the promoters of employee share-ownership schemes recognize that point. When things are going well, your job and your savings may look great, but if things go badly, you take a double hit. As Enron showed, working for a company doesn’t necessarily mean you know what is happening to the company’s finances. In fact, in the light of rumours and emotion, you might be a less sensible investor in the company you work for than in a company you have no connection with. In Canada, pension legislation generally limits the proportion of pension assets that can be invested in any one company, including the employer, but if you are in a pension plan, it wouldn’t hurt to check that the rules are being complied with and your pension money is widely invested. More generally, if you have a lot of your savings tied up in your company’s (or any other single company’s) stock, you should probably think seriously about diversifying, and avoid having to relearn the painful lesson taught to Enron’s employees. |
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