[BETA] Fortnightly

The real, painful reform has only just begun.

It has been almost a year since Enron imploded into bankruptcy, but rather than solve problems, the event has only brought uncertainty-credit rating downgrades, a drop in investor confidence, and heightened scrutiny from the Congress, the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), and the Commodity Futures Trading Commission (CFTC). Many utility stock indices (composed of regulated and unregulated companies) have hit all-time lows over the past several months.

Some measures, including a more vigorous enforcement of securities laws, could well ease investor worries. As Erroll Davis, chairman, president, and CEO of Alliant Energy, says, "To the extent the reforms provide investors with more information, I think they'll feel better."

Nevertheless, the SEC created an uproar when it listed Enron and Dynegy, in particular, among eleven companies that failed to certify their most recent financial statements under the newly enacted Sarbanes-Oxley Act, which required top corporate executives to certify information contained in quarterly and annual reports.

Dynegy spokesman John Sousa took the heat for his company's no-show. As he put it, Dynegy instead had chosen to file documents explaining why its interim CEO, Dan Dienstbier, (who recently replaced CEO Chuck Watson), and then-CFO, Louis Dorey, were each unable to validate the financial statements. Sousa laid the blame on pending restatements of Dynegy's 2001 financial results and the re-audits of the company's 1999, 2000, and 2001 financial statements. Sousa said he expects PricewaterhouseCoopers to complete its re-audit by year-end. At that time, he promised, Dynegy's leadership would certify the prior statements.

Alliant's Davis downplays the importance of CEOs certifying financial statements. "I don't know whether my signing a financial statement will make you feel better about investing in my company," he says. "Certainly, over time ethical performance of managers and companies will do more to restore confidence than anything else."

Others raise doubts. Leonard Hyman, senior industry advisor at Salomon Smith Barney, fears that the new law does not go far enough.

"I think the changes in law just affect obvious instances of wrongdoing," he says. "They don't get at, deep down, what was going wrong. The proposals assume that the whole problem is criminality. I don't think that's the case at all.

"You have to look at the reforms in two ways," Hyman continues. "One way is to think they will be effective because the new laws will prevent something 'sleazy' from happening." On the other hand, he notes, the new law may do nothing more than make people feel better.

In other words, Hyman suggests that the measures may not achieve much in the way of prevention, because perhaps there might not be that many sleazy events. Barring auditors from doing consulting work for the same company, he says, may prevent very little in the way of bad conduct, because maybe very few bad things have happened.

Instead, he says, "I think a much more important issue is the question of the responsibility of directors. I'm not convinced that directors have been doing the job properly." The main problem,