Only yesterday, the American system of corporate disclosure was championed as a
model for the rest of the world. Indeed, the Asian financial crisis of 1997-98, which was
marked by revelations of a woeful lack of transparency in financial markets, led to a chorus
of demands for the adoption of U.S.-style disclosure systems.
What a difference a metaphorical day makes. The number of American corporations multimillion dollar settlements. Nothing has done more, however, to generate concern
about the adequacy of corporate disclosure than the failure of Enron last fall and news
that its auditor, Arthur Andersen, knew about the company’s problems beforehand, did
not force their disclosure, and later shredded documents in an apparent effort to cover
up its liability.
whose earnings have been restated passed 200 in 1999. Numerous high-profile lawsuits
have been filed against accounting firms for auditing failure, generating a number of
Many fixes have been proposed, and at this writing, some are being seriously considered
by the Congress. But even as policymakers deliberate, the market itself is driving
change. Corporate managers and directors are paying far more attention to disclosure,
and some companies whose stock prices were hammered after Enron’s failure (notably
AIG, GE and IBM) have provided more details about their operations and risks.
The various gatekeepers who failed so miserably in warning of Enron’s problems
accountants, analysts, and ratings agencies have also tightened up their practices. The
New York Stock Exchange has issued far-reaching proposals for changes in corporate
governance. And the SEC has been far more aggressive about pursuing accounting