Sunday, January 13, 2002

After peaking in late 1999, stock in Lucent Technologies lost over 90% of its value in a little more than a year--a decline of over $200 billion in market capitalization. In late 2000, it admitted to certain "financial irregularities" under its previous CEO--specifically, that it had overstated revenues by hundreds of millions of dollars. It spent most of 2001 staving off bankruptcy by selling off assets. As a blue-chip Bell system spin-off, Lucent figured prominently in the 401(k) plans of millions of Americans, including, of course, many of its own employees, whose savings were thus decimated.

Also peaking in late 1999 were shares of Xerox, which proceeded to lose nearly 90% of their value over the subsequent two years. Like Lucent, it admitted (in 2001) to a number of "accounting irregularities", involving over $800 million in previously reported revenue, and spent 2001 hovering on the edge of bankruptcy. Also like Lucent, Xerox, as a legendary technology company and stock market success story, no doubt played a part in eviscerating its share of employee 401(k) plans.

Then there are the numerous smaller companies--Cendant, Rite Aid, Lernout & Hauspie and many others--that endured, during the same period, both a stock crash and allegations of serious "financial irregularities". Taken together, these firms' combined capital losses and misrepresented revenues surely dwarf any one corporation's tally of fraud and mismanagement.

Why, then, all the fuss about Enron? Why all the misleading stories implying that Enron's employees were forced to invest in its stock (when they were not), and that its bankruptcy was a result of fraud and embezzlement (when plain old mismanagement more than sufficed to do the trick)?

A cynic would of course point to the political hay to be made by tying particular public figures to the failed company. But similar scandalmongering tactics could surely have been applied to the Lucent and Xerox cases, had the public mood been receptive. (Both are large, well-connected companies, and it's unlikely that either lacked its share of "friends" in government.) Yet the tales of their woes were largely confined to the financial pages, while Enron's are splattered across the front page.

On the other hand, a mere year ago the country was still far from even beginning to appreciate the devastating extent and impact of the investment bubble of the late nineties. Still yearning to believe in the once-magical earning power of the floundering technology sector, the public was at that time willing to cut firms like Lucent and Xerox (not to mention thousands of dubious dotcoms) a great deal of slack, even as they melted down in spectacular fashion. Today, with the economy evidently suffering from the harsh consequences of that misplaced faith, investors have entered the "anger" phase, and are looking for a scapegoat to blame. In other words, Enron chose a terrible time to go bankrupt.

Now, Enron's collapse was without question a huge commercial fiasco, and I'll certainly be happy to see any wrongdoers among its management severely punished. But the campaign of vilification against the company obscures the fact that its executives, far from being uniquely dishonest, incompetent and unscrupulous, were in fact entirely representative of the business practices of a particularly dishonest, incompetent and unscrupulous era. And until the full magnitude of that period's wholesale corruption is fully recognized and understood, it stands a good chance of being extended and repeated for many years to come.

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