Outraged lawmakers, investors, and employees still stinging from the Enron debacle, have seen Global Crossings and WorldCom along with others compound an already bad situation. But it is the scope of abuses at Enron that has Congress debating accounting reforms, and executives and accountants alike grappling to understand what went wrong and how best to operate now that “business as usual,” no longer applies.

To get a hold of some of the complex issues, a recent pair of conferences hosted by Emory University’s Goizueta Business School, brought executives from several industries together to discuss the impact of Enron’s fallout on the accounting profession, corporate boards, the legal ramifications of wrongdoing, and what it means for the future of the corporation.

The purpose of accounting is, in a broad sense, to give an accurate view of a company’s inner workings and actual earnings. The Supreme Court, in 1984, declared that auditors have an overriding duty to protect the public interest. But as recent events have shown, numbers can be manipulated and a select few benefit. During the first conference on the future of accounting, panelists debated the question, “Is Accounting Broken?”

“No,” said George Benston, professor of accounting and finance at Goizueta, “The letter [of the accounting rules] was followed in most of the controversial practices at Enron. That was the problem, they didn’t follow the spirit.”

Organizer and professor of accounting Al Hartgraves agreed. “The main problem at Enron was behavioral; it was not a structural accounting or auditing problem.”

Ray Hill, CFO Mirant Corporation, a global competitive-energy company, went one step further, “It was greed that blinded the whole management team to corporate governance.” While James Harrington, partner and head of National Accounting and SEC Technical Services, PricewaterhouseCoopers, conceded there was a misuse of accounting rules, he agrees that Enron was clearly “a business failure.”

“Management needs to do the right thing,” Harrington said. “ Auditors must be able to stand up and say they don’t agree…. Those are two big ‘ifs’ and it’s important that they’re in place.”

But Guy Budinscak, managing partner, Atlanta office of the accounting firm Deloitte & Touche, admitted accountants must share in the blame. “Is accounting broken? I wouldn’t go that far. The Enron debacle was the 9-11 for the accounting industry. The repercussions will be far ranging. We, as a profession, have a lot of explaining to do. We, as a body, have created the most complex set of accounting rules you can imagine… that seem to change with great regularity. We help to create complex organizations.”

Indeed the Big Five (now Final Four) have begun divesting their consultancy businesses in order to reestablish objectivity. Ernst & Young and KPMG sold their tech consulting arms, Deloitte & Touche is divesting its consultancy and PricewaterhouseCoopers, the nation’s number one firm, is hoping to spin off its IT arm later this summer.

But Budinscak doesn’t see consulting as the villain. In fact, he noted that adding consulting to the mix “makes us better auditors” because it increases the knowledge of the firm they’re auditing. Instead, he said the problem is when companies strive to keep business at all costs. “That’s asking for trouble.”

Achieving a balance between what’s in the public’s best interest and making the client happy is the crux of the issue. Will government control help resolve the issue or complicate it? Is the creation of a public accounting oversight board the answer?

“I think there is a need for a federal agency to take accountants who violate accounting principles and discipline them,” Goizueta’s Benston said. “And it should be called the Securities and Exchange Commission.” Benston isn’t convinced that the SEC needs more rules and regulations or an oversight board. He thinks they just need to do their job. “Some people did some pretty lousy accounting. Why are they allowed to keep practicing?” he asked.

The second event “Enron Conference for Directors & Officers,” took a closer look at the impact of proposed legislation, the challenges of sitting on corporate boards, and the legal case against Enron.

After looking over Enron’s financial statements, M. Louise Turilli, VP and Associate General Counsel for BellSouth Corporation, a communication services company, said of Enron’s Special Purpose Entities or SPEs, “you’d never know” about them from the company’s financial statements. Fastow’s $45 million compensation for managing the SPEs wasn’t included either. In an effort to increase transparency, the SEC is proposing that corporations get their financial statements out with less lag time. Currently, annual reports or 10-Ks are completed and filed within 90 days of fiscal year end. The SEC is pushing to change that to 60 days. There are similar proposals to cut the time for 10-Qs and 8-Ks. Although she speculates that some standardization will come out of this, Turilli is concerned. “With auditors, audit committees, and management, it’s a time consuming thing [to get out reports],” she said. “I really wonder whether or not the quality of disclosure will decrease.”

David Carter, a partner with the law firm Hunton & Williams, which cosponsored the event, goes one step further. “I think it’s impossible,” he said.

“The new 8-K requirements are, at best, odd,” Carter added. Those requirements would require companies to file, within two days, stock transactions by management and loans to management.

Another proposal suggests rotating auditors every five years. “That’s very expensive,” Benston argued. “Perfect is much too costly.”

Enron’s audit committee was stacked with heavy hitters and bright people. So how did they miss what was going on?

“It’s a real challenge to sit on audit committees these days,” noted Robert Seaman, Partner and Director of Southeast Area Professional Practice, Ernst & Young. “Trying to get your hands around a complex business in 15 to 20 hours a year [is difficult].”

“The audit committee has to ask good questions,” said Dennis Beresford, Member of Board of Directors, National Service Industries, Inc., and a former Chairman of the Financial Accounting Standards Board (FASB). “And they have to have enough experience and business judgment to analyze the answers they’re getting.”

Indeed the decision to be part of a board has taken on a new meaning.

Allen Goolsby, partner at the corporate law firm of Hunton & Williams said, "You’ve got to have a clear understanding with management that you’re not going to be a rubber stamp. If you know in your heart of hearts that you aren’t going to be ready to take management on, then you shouldn’t be on that board. At the end of the day, I really think it’s a trust factor: how trustworthy is this enterprise, how trustworthy is this management?"

Kenneth Khoury, VP, Deputy General Counsel and Corporate Secretary of Georgia-Pacific, added another warning sign: "From my experience, a company that’s experiencing extremely rapid growth, especially through acquisition, presents a high risk for failure. There are all kinds of things that go on -- in accounting, in lack of due diligence, and in doing the next deal, especially when using stock -- that all creates a dangerous environment."

Joel Koblentz, an Atlanta-based advisor on corporate leadership and governance and a veteran of the executive recruitment industry, added, "When you’re approached to join a board, look at the nominating committee -- if it doesn’t consist predominately of outsiders, that’s certainly a red flag to me. And if you’re seeing an audit committee with an insider on it, I’d worry about that. If the Chief Executive is sitting on the compensation committee, that’s another red flag."

Andrew Ward, professor of organization and management at Goizueta, widened the scope of board member concerns even more: "If you look at the lifecycle of a company, there’s the entrepreneurial-creation stage, the high growth-acquisition stage, the market maturity stage, and the decline stage. There are danger points for the organization and the directors throughout that lifecycle, and they often occur at the transition points."

John “Jack” Ward, Chairman and CEO of Russell Corporation, an athletic apparel manufacturer, noted, "I think the single most important job of the board is to hire a CEO with a high level of ethics, because he’s the one who really sets the corporate culture."

And where there are ethical holes, the opportunity to violate the law can grow. The final panel, "Fear Factor: The Threat of Prosecution,” examined the legal ramifications of corporate wrongdoing.

David Geneson, also a Partner at the corporate law firm of Hunton & Williams, began by saying that he understood the Enron scandal had resulted in some 18 different government investigations of the company’s conduct. "If I just stay within the confines of the federal prosecutions, the types of violations include obstruction of justice, which constitutes a 10-year felony, numerous securities violations ... conspiracy; which is a favorite of prosecutors, because you just need one overt act then fraud; which is probably the broadest and most nebulous legal concept of all, making a false statement to a federal investigator, which is in itself a felony ... and perjury, of course. The prosecutor has a lot of arrows in his quiver."

Jo Ann Harris, an attorney and Former Assistant U.S. Attorney General, brought up another issue: "In a situation like Enron, or any industry in which a bubble has just burst, where you’ve got press ink flowing, late-night comedians making jokes, you’re seeing magazine cartoons -- these kinds of things are all influencing prosecutors more than you’d think. In the government’s view, when a situation like this happens, a good public hanging is just a marvelous lesson for the corporate culture. Prosecutors are looking to set examples for the rest of an industry."

Harris then gave eight factors federal prosecutors consider in determining whether to pursue an indictment against a corporation:

1. The nature and seriousness of the offense, including the risk of harm to the public.
2. The pervasiveness of wrongdoing within the corporation, including the complicity ... by corporate management.
3. The corporation’s history of similar conduct, including prior criminal, civil and regulatory enforcement actions against it.
4. The corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation.
5. The existence and adequacy of the corporation’s compliance programs.
6. The corporation’s remedial actions, including ... replacing responsible management, disciplining or terminating wrongdoers, and paying restitution.
7. Collateral consequences, including disproportionate harm to shareholders and employees not proven personally culpable.
8. The adequacy of non-criminal remedies, such as civil or regulatory enforcement actions.

Sylvia King Kochler, another Partner at Hunton & Williams, said that although the panel had started by discussing criminal liability, the reality is that the issues percolate to the surface in a civil context first. “If a company has a precipitous stock drop, preceded by accusations of insider trading, or even comments in Internet chat rooms -- these kinds of things will put it on the radar screens of numerous national law firms that specialize in shareholder class action suits,” she explained. “So when a company like Enron has problems, the first thing will be a civil action. Essentially these class-action firms will say the company and its directors has made false statements, or omitted to disclose injurious material information concerning its stock. At the same time, the SEC may institute its own investigation, which is also civil in nature. The penalties can include fines, or terminating officers or directors of the company."

When asked what a company can do to mitigate the damage caused by a civil suit or criminal indictment, Carol Cookerly, President of Cookerly Public Relations, had a startling answer: "Over-react! Go out of your way to open your company up, to go the extra mile for investigators and the public." She said, "Survival of your brand is everything. The media has to be sold that you’re sincere in wanting to fix your problems -- and over-reaction is the way to go.”

Cookerly also feels Arthur Andersen made a number of public relations blunders, including the whole "save our jobs" on-the-street demonstrations the firm organized for its employees. That misguided effort said to her, "Okay we feel bad for your employees -- but what are you doing for your clients? A better strategy would have been to say, ’We’ve got a totally independent blue ribbon, peer review panel that’s going to come in on every audit job we’ve got, and it’s going to ensure that Arthur Andersen is absolutely doing the right thing."

Kochler gave a last piece of advice to every company’s management: "One of the lessons to be learned from Enron is that you should always have a plan in place on how to deal with a worst-case scenario, how to manage crisis-type communications with all your constituencies -- employees, customers and the public."