Editor's Note: Jim Cramer's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Feb. 4 on RealMoney.
No doubt the
report makes it clear that you can't trust the executives of major corporations or the boards of directors to protect the shareholders' interests if the top dogs are allowed to unload stock into short-term positive considerations. Remember, that's what the troubles at Enron were all about, a series of short-term pieces of chicanery meant to keep the balls in the air.
But there are simple, clear ways to prevent Enrons. First, restrict selling of stock from the big guys,
. If you make them own the stock for, say, five years before they sell, they won't loot the company or do foolish things that boost short-term profits. They won't be able to make any money short-term. Enron execs wouldn't have done most of the stuff that is in the report if they weren't so worried about short-term value considerations.
Second, the separation of accounting and consulting means little. We need to be sure that auditors rotate, as in Germany. Every five years companies should change auditors.
Third, companies shouldn't be able to hire auditors from their accounting firm; we have to take away that friendly nexus. Enron was riddled with Arthur Andersen folk.
If we make those three changes, we will prevent another Enron, plain and simple -- provided, of course, that we put the people who broke the law at Enron in jail. That, more than anything else, will stop future Enrons. But these rule changes will make it very clear that it won't be worth the effort to fool people. Only longer-term concerns, well-audited, will make a difference to the insiders, and hence, to the rest of us.
Why wasn't this internal Enron report a whitewash? Why didn't the "special committee" do what it always does in these situations: isolate a group of rogue actors within the firm and give everyone else a clean bill of health? Good question. In part, the report did do what the outside directors typically do: It indicted Andy Fastow as a man who ran a conspiracy within the firm. But the report didn't let Lay off the hook or Skilling -- because it appears that no one in the upper levels of management cooperated with the report, so the report couldn't whitewash anything even if it wanted to. That's amazing.
James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made.
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