Management consultants Larry Elliott and Richard J. Schroth deserve some kind of award (such as Timeliest Book of the Year) for their foresight in deciding to write a book on corporate ethics. Their compelling new exposŽ, How Companies Lie: Why Enron is Just the Tip of the Iceberg (Crown, $18.95, 200 pages, ISBN 0609610813), arrived on bookstore shelves in July, soon after news broke of the WorldCom accounting scandal the latest in a string of corporate fraud cases that have rattled investors, regulators and employees. Since they're the first to publish a book on the topic, Elliott and Schroth have quickly become media darlings, appearing widely on television and radio in recent weeks to spread the word about corporate misdeeds.

The authors call their book an "investor's guide to corporate smoke and mirrors," and the gory details make for scary reading, indeed. All the tricks, all the scams and all the ways corporations "cook the books" are here. The culture of dishonesty is so pervasive that financial statements and earnings projections can no longer be trusted. Elliott and Schroth say they actually started writing the book in early 2001, well before Enron began to unravel. They found that numerous corporations possibly as many as 10 percent of the nation's 14,000 public companies have serious accounting problems. What can investors do to sort through the maze? As outlined in How Companies Lie, they must begin to ask tough questions of corporations, analysts and financial planners. They should avoid hot stocks and search for companies with trustworthy leadership. Elliott and Schroth also recommend several broader reforms to address the corporate cheating that is threatening the integrity of America's capital markets. One of these reforms is an "executive escrow" system that would require insiders to get approval from the SEC before selling their stock. But the authors note ominously that it won't be easy to correct the current web of deceit and double-dealing that has been decades in the making.

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