With the Enron accounting scandal now a full-fledged stock market contagion, institutional investors are getting a little concerned. Yesterday, the Council of Institutional Investors — a group of 250 pension funds and investment-related firms — sent a letter to SEC Chairman Harvey Pitt calling for a complete overhaul of auditing and corporate governance systems.
The council, which sent a similar letter to congressional committees investigating the troubled Houston energy trader, appears to be concerned that the current media frenzy surrounding the Enron meltdown may not actually result in any meaningful reforms. “As tragic as the Enron case may be,” notes Council Executive Director Sarah A.B. Teslik, “it is also an opportunity for regulators and legislators to take a close look [at the] painful failure of some safety nets intended to protect investors.” According to the letter, council members lost hundreds of millions of dollars on their Enron investments.
The institutional investors suggested several steps for improving current investor safeguards. Here, in no particular order, are some of the suggestions:
Apparently, the Council does not think highly of Pitt’s suggested reforms. “Simply switching to more current disclosure, as Chairman Pitt has proposed, is not enough,” the Council noted in the letter. It went on to state it is “distressed by Chairman Pitt’s recommendation that the agency take a ‘kinder, gentler’ approach with the accounting profession.” Seeing how the institutional investors in the Council manage nearly $2 trillion in pension assets, their suggestions may actually get listened to on Capital Hill.