There has been no shortage of upsetting things about the Enron scandal: rank and file employees often losing their life savings while high level executives cashed in for millions and received additional millions in bonuses for the stock inflation that eventually brought Enron down; blatant conflicts of interest being quietly overlooked by almost everyone involved; executives who should have known better (and probably did know better) misleading the public through the eleventh hour; the accountants and auditors seeming to be more concerned with shredding documents than shedding light; members of the board of directors receiving lavish gifts from the executives they were charged with overseeing; millions being spent to discourage genuine oversight and meaningful government regulation; and the few warnings that came from within the organization being steadfastly ignored by those in charge.

The harm caused by the Enron/Andersen debacle remains to be calculated. Some of it will be tangible -- the retirement funds lost by Enron employees, the lost jobs, the devalued stock. Other harms are harder to count, but no less important. Consider the impact on public trust.

Trust is like the glue that holds society together -- without it, we crumble into tiny isolated pieces that collide randomly with one another. In a world without trust, individuals cannot depend on one another; as a result, individuals can only be out for themselves. Economists have shown that societies where trust is low have stunted economic growth because a robust economy demands that individuals be able to enter into cooperative economic relationships of trust with people who are strangers.

The Enron affair has damaged public trust both directly and indirectly. We have seen the way Enron and Andersen conducted themselves, and our trust in them has obviously been deeply shaken. Even more damaging, however, is the realization that these practices were not aberrations. We have come to realize the way in which executives are rewarded with seven-figure bonuses for inflating the stock value of their company. We have come to realize the Wall Street analysts are often singing the praises of stocks in which they have a strong financial interest, even -- or perhaps especially -- when those stocks are of questionable value. We have come to realize that auditors are often beholden to the companies they are auditing, depending on them for lucrative consulting fees. The stock market survives on trust, and if the public's trust in the functioning of the market -- stock prices, analysts' reports, and independent audits -- is too deeply eroded, then the market itself will fall.

This damage to public trust occurs, unfortunately, in a climate that has seen significant damage to trust in other areas as well. Trust in Catholic priests has certainly been shaken by the seemingly endless revelations of sexual abuse and the ways in which allegations in this area were handled for years. Trust in physicians, once the most revered nonreligious figure in our society, has declined significantly with the rise of managed care.

When trust disappears from our lives, those lives are diminished and, at best, we try to do everything ourselves, refusing to rely on those who should be more knowledgeable than us.

In the face of these dangers, there are two things we can do. One has to do with better rules, the other with better people.

First, we need better rules, not just for corporations, but for analysts and auditors as well. Congress is currently considering what can be done in this area, and we can certainly voice our support for tough and effective legislation that will reduce the chance of more disasters like Enron. Some of these proposals try to minimize the possibility of conflicts of interests, and these are certainly to be lauded. Other proposals are even more interesting, for they seek to hold executives more strictly accountable for their actions. One of these proposals would remove insurance coverage for legal costs for executive misconduct. Another would set a new standard for punishing executives who mislead shareholders; they need only be shown to be negligent, not reckless, to be held accountable for misleading their investors.

Strict rules are not confined to high level executives. Consider boards of directors, which bear the heavy responsibility of overseeing the company as a whole on behalf of the shareholders and ensuring that it remains committed to its fundamental goals and that it pursues those goals in responsible ways.

Conflicts of interest inevitably arise when corporations give gifts and perks to members of their board, as occurred in the Enron case. Allowing such practices undermines the independence of the board and makes it much more likely that board members will try to please company executives. In the case of Enron's board, one director had earned almost $500,000 in consulting fees from Enron, while another board member had consulting fees in excess of $70,000. Two other board members saw Enron provide generous support to the nonprofit organizations for which they worked. Most blatant, however, were the board salaries: over $300,000 in cash and stocks, far in excess of standard compensation to board members.

This created a powerful motive not to offend the hand that fed them. The final ingredient in this mixture has been the way in which board members are usually not held individually responsible for the failings of the company they oversee. Such a lack of accountability makes it more understandable that board members are often completely unaware of practices such as derivatives that may put their company at risk.

Similar issues emerged in regard to accounting firms.

Traditionally, accounting and auditing firms have had a clear responsibility to tell corporations -- and the shareholders and, when appropriate, the public -- the truth about themselves. Even in those cases where the truth is not welcome, the responsibility of such firms is to provide a clear and honest picture of the financial health of the company being studied. Yet what has become evident is that accounting firms are often financially dependent for lucrative consulting contracts to the very corporations they are charged with auditing. In the case of (Arthur) Andersen, their consulting fees exceeded the fees they received from Enron for their auditing services. Once again, there are strong financial disincentives to bite the hand that feeds them.

But better rules are not the concern of Congress alone. Numerous professional organizations, including accountants and auditors and analysts as well as investment businesses, have codes of professional ethics that purportedly govern the behavior of their members. These codes need to be strengthened, publicly proclaimed, and enforced by the professional organizations themselves.

Finally, corporations themselves need to strengthen and enforce their own codes of ethics. That means more than simply having a nice- sounding code of ethics posted on the corporate Web site. It means a commitment to enforcement, and that in turn means budgetary commitments for ethics training, corporate ethics officers, ombudsmen, and other things that can guarantee the effective implementation of a code of ethics. The Enron board waived its own code of ethics at one point to allow its own chief financial officer to manage the limited partnerships that would eventually be the undoing of Enron.

Second, we need better people, and we need to support those people when they step forward. The tragedy is that Sept. 11 was marked by countless heroes, individuals who risked (and often lost) their lives in efforts to save others. The Enron collapse had almost no heroes. The only person to stand out was Sherron Watkins, who was willing to sound the warning bells at the highest level of Enron. Despite the fact that her warnings went unheeded, she still emerges as a person of integrity in a corporate environment that actively discouraged a willingness to stand up for principles.

Yet one cannot help but wonder why there were not more individuals like Sherron Watkins, more people willing to stand up for what is right.

Part of the answer to that question is to be found in the formative years before individuals enter the corporate world. Good business practices stem from a combination of good rules and good people, and the process of formation of good people begins far earlier than the point at which they join the fast track of major corporations.

A crucial factor in preparing people to act well on the corporate level is academic integrity in colleges and universities and even earlier in high schools and elementary schools. Academic integrity is the bridge to professional integrity. It is a short step from cheating on tests to cheating on corporate balance sheets, and many of the ethical quandaries individuals encounter in corporate life are ones that they have already faced in their college careers. How they deal with those dilemmas in college sets the pattern for how they will deal with them later in life.

Another central factor is the importance of teaching ethics in order to prepare students for the moral challenges they will face in their professional lives after graduation. This not only includes dedicated courses in business ethics, which are now offered at most colleges and universities across the nation, but also ethics components integrated throughout the undergraduate curriculum.

The Ethics across the Curriculum movement, which has grown in popularity dramatically in the last ten years, first on the college level and now on the secondary school level, assists teachers in all disciplines in developing modules for their regular courses that address ethical problems within their profession, whether this be engineering, accounting, medicine, or almost any other profession. Students receive a clear message that ethics is not a peripheral concern limited to a particular course, but rather that ethics is a matter of deep and pervasive concern throughout their chosen profession.

This process of character formation needs to begin early in life, in schools, in families, in the media, and in civic organizations. Parents who give clear moral messages to their children need to have their messages reinforced by schools, by sports teams, by youth organizations, by movies and the popular press. It is a task to which all of us can contribute.

San Diego Union-Tribune, March 31, 2002