Why are Public Corporations not Treated as So?

[budullewraagh]

Private enterprise should be free to do as it wishes and make and lose its money freely. On the other hand, public enterprise, being supported by funds from stockholders, should not be as much in control of their own destinies.

 

I sound like a Marxist with that last line, don't I? Don't lose patience; this is where it gets more reasonable.

 

Other holders of the public's monies (banks, etc) are audited by individuals chosen by the federal government. Why is it that public enterprise currently has the luxury of hiring their own auditors? CEOs that wish for improperly kept books and Enron-like endings are still able to do so, especially considering the fact that they can choose auditors that are corrupt to begin with and then bribe them. On the other hand, it would be more difficult to bribe the feds if for no other reason because CEOs have no control over who the individual is that audits any given company. Furthermore, CEOs may become less inclined to bribe if the feds are watching. At the very least there will be no progress: just the same amount of bribery and corruption that occurs today. Anything more and that's real progress. What do you think?

[jackson33]

all industry is not publicly owned. however most to take advantage of what the public will pay for dividends or increased business. these companies have a good many checks and balances. if the public becomes upset there value will soon be decreased by devalue of there stock. they have a board of directors who represent the stock holders in company affairs and do control much of managements decision. pay roll to the management and dividend distribution just a couple. other checks on a company, include individual stock holders, local governments and the employees.

 

as the banks these company's report each quarter to the federal government as to virtually every aspect of there business as well to the exchange they are traded under. the employment of audit firms is primarily another check for the company and they report independently of the company. they can choose this company, much as the private citizen can choose a tax consultant. in neither case is the hired or chosen entity, responsible. since they are each given the fact and figures, by the company.

 

companies or there management can and do make mistakes. not all are for personal gain, but errors in direction or some component of the company. failures are most common in private or start up companies that you never hear of and failure rate is about 80%.

 

Enron was tragic in that it was total loss to most all there employees and stock holders. its a little more complicated then just bad management but it did seem to be build on a pyramid scheme with energy and would likely have fallen with good management and all checks in place. however many companies have handed down pick slips and cost share holders billions near that of Enron. the tech bubble pop of the late 90's cost 80% of the value of NAS market and most of the companies have gone under or operate on very reduced funds. the dollar figures were in the trillions.

[Pangloss]

Private enterprise should be free to do as it wishes and make and lose its money freely. On the other hand, public enterprise, being supported by funds from stockholders, should not be as much in control of their own destinies.

 

Agreed. It's also a basic premise of our current economic system -- a given, if you will. Not Marxist at all, except perhaps in the eyes of those unfamiliar with how the system works (but hey, that's what we're here for, to discuss and learn).

 

 

Other holders of the public's monies (banks, etc) are audited by individuals chosen by the federal government. Why is it that public enterprise currently has the luxury of hiring their own auditors? CEOs that wish for improperly kept books and Enron-like endings are still able to do so, especially considering the fact that they can choose auditors that are corrupt to begin with and then bribe them. On the other hand, it would be more difficult to bribe the feds if for no other reason because CEOs have no control over who the individual is that audits any given company. Furthermore, CEOs may become less inclined to bribe if the feds are watching. At the very least there will be no progress: just the same amount of bribery and corruption that occurs today. Anything more and that's real progress. What do you think?

 

I think it's a reasonable suggestion, but it's too soon to make a call like that. It's only been four years since Sarbanes-Oxley was signed, and it's going to take some time to see if we've created enough legislation to eliminate the Tycos and Enrons.

 

I believe it is possible for non-governmental auditing to be effective (and in fact I believe that it IS effective 99% of the time). The failure to disclose in the case of Enron was due to Arthur Andersen having a conflict of interest in its business dealings with Enron -- in other words, it was making far more money consulting with Enron than it could possibly make auditing it. Remove the conflict of interest and that whole entire fiasco never happens -- and without a dime spent on bureaucratic oversight.

[swansont]

Why is it that public enterprise currently has the luxury of hiring their own auditors? CEOs that wish for improperly kept books and Enron-like endings are still able to do so, especially considering the fact that they can choose auditors that are corrupt to begin with and then bribe them.

 

Lower-payed government workers couldn't be corrupt and be bribed?

[ParanoiA]

Is it because the bank's monies are insured by the federal government, whereas the Enron's are not? Just a question. Economics confuses the hell out of me easily...

[john5746]

It's only been four years since Sarbanes-Oxley was signed, and it's going to take some time to see if we've created enough legislation to eliminate the Tycos and Enrons.

 

Or enough legislation to run smaller businesses to the brink.

[Pangloss]

Well remember, SOX only affects publically-traded companies. Smaller companies tend to be private. If they don't think they can handle SOX requirements, they don't have to go public in the first place. (Of course there could be a short-term impact on companies that went public and are now struggling for whatever reason and can't afford to "convert" everything to SOX, but I'm not sure that's a significant long-term concern.)

[budullewraagh]

"Lower-payed government workers couldn't be corrupt and be bribed?"

 

Of course they could, and I already addressed this. The worst-case scenario is seeing that there is no change and the corrupt will continue to be corrupt. Those who want to be corrupt in the present only have to hire a corrupt auditor. With my proposal in effect, they'd have to bribe a government official and then hire a corrupt auditor. This makes things at least slightly more difficult and certainly does not make it any easier to get away with corrupt bookkeeping practices. Remember that any decrease in corruption is gain and the benefits will outweigh the minimal costs of implementing my plans.

 

Is it because the bank's monies are insured by the federal government, whereas the Enron's are not? Just a question. Economics confuses the hell out of me easily...

It's probably that combined with the fact that the government doesn't want to take on big business.

[john5746]

Well remember, SOX only affects publically-traded companies. Smaller companies tend to be private. If they don't think they can handle SOX requirements, they don't have to go public in the first place. (Of course there could be a short-term impact on companies that went public and are now struggling for whatever reason and can't afford to "convert" everything to SOX, but I'm not sure that's a significant long-term concern.)

 

 

Yeah, I know of a specific company that sold out, but honestly, they had bigger problems than SOX. I think it just adds on to the cost of doing business. If businesses are already struggling with healthcare costs and environmental regulations, etc, then this will just add to it.