William A. Niskanen, Editor
Without doubt, this is the best book written so far on why Enron happened and the public policy implications for this and other accounting scandals.
The editor, William Niskanen, is a former acting chairman of President Reagan’s Council of Economics advisor and has been chairman at the Cato Institute since 1985. The book dissects the failures leading up to Enron, from its Board (which, by the way, complied with all elements of the Sarbanes-Oxley Act, and was voted one of the five best Boards in the United States by Chief Executive magazine), internal and external auditors, its attorneys, bankers, credit rating agencies, stock analysts, the business press, and most egregious, the SEC––the watchdog that didn’t bark.
This book is the only one I’ve read that offers meaningful ideas on accounting and auditing reforms, such as the innovative idea of having the stock exchanges select which accounting standards its companies should be required to follow, as well as paying the auditors itself in order to remove the ultimate conflict that exists between auditors and their clients––the fact they are being paid by the very companies they are hired to audit. This would force competition into the promulgation of accounting standards as different exchanges would select different standards, a salutary idea. Also, the book points out PCAOB may be an unconstitutional private monopoly since it has been granted both regulatory and taxing authority––I cannot wait for a lawsuit to be brought on these grounds.
The book argues not only for PCAOB’s elimination, but also repealing the incredibly wasteful Sarbanes-Oxley Act. This book is very deep, grounded in solid economic theory, and, unfortunately––but not surprising––I’ve never seen anyone in the mainstream accounting press mention any of the ideas it contains. For true accounting and auditing reform, we must look to the think tanks, not the universities, government, or the regulatory sector. This book proves, beyond doubt, that think tanks are the modern-day “idea brokers” in the arena of public policy and have definitively eclipsed the universities as the ultimate intellectual institutions.
Other notable books: Managers Not MBAs by Henry Mintzberg, which dissects what’s wrong with the bean-counting mentality of most business education. iCon, by Jeffrey Young, a fascinating look at Apple, Pixar and Steve Jobs. The Daily Drucker, by Peter F. Drucker, who sadly passed away in November of this year, but left an incredible legacy through his prolific writings. And finally, an essay, “Reflections of a Recovering Management Accountant,” by H. Thomas Johnson, which may be one of the most thought-provoking pieces ever written on what is wrong with the accountants’ view of business, especially enlightening since Johnson is an accounting professor.