Janine Wedel - Shadow Elite - How the World's New Power Brokers Undermine Democracy, Government, and the Free Market

Conversely, the episode also shows journalism at its best. We know about the generals’ multiplicity of roles because the New York Times underwrote an investigation for which the reporter won a Pulitzer. But these facts were not unearthed until long after American public opinion had already been swayed.

Existing means of holding de facto public decision makers accountable to the public are far too inflexible for the maneuverings of today’s premier influencers—flexians and flex nets—who are, above all, wielders of influence on public issues. Not only do government audits harken back to a world with clearer demarcations that depend on the existence of a definite state-private divide. They also have limited jurisdiction and are not typically charged with tracing influence across organizations, but rather with how government spends taxpayers’ money.

There are other problems, too. The very institutions that are supposed to mind the store may be occupied by players working on behalf of themselves and their networks, not the institutions. Enron, the now-defunct energy giant, whose CEOs and CFOs kept key information from their board of directors and forsook shareholders in favor of their own spoils, famously illustrates the shortcomings. Communist managers pale in comparison: Although they vastly underreported profits—in their case, merely to make the system work (and under postcommunism, to conceal income and shrink tax liability)—the top officials of Enron grossly overreported profit in order to rake in millions for themselves.

Moreover, at the same time that the accounting firm Arthur Andersen (formerly among the Big Six) was auditing certain units of the company, top executives at Enron were maneuvering across the whole, concealing money-making schemes by creating entities that enabled those schemes. These executives used Enron stock as collateral for new partnerships, which they used to hide Enron losses and keep the company’s balance sheets looking better and better. (Tellingly, flexlike overlapping roles enabled these partners-in-crime to hide many of their money-making schemes.) Meanwhile, not only did Arthur Andersen auditors (let alone Enron’s board of directors or shareholders) not know the true nature of these schemes, they avoided the hard questions because Arthur Andersen had cozy relations with Enron executives and the auditing company had a unit dedicated to servicing Enron exclusively. “Cross pollination” of employees between the firms was routine. There were few incentives to do much actual auditing. As the lawyer and fraud investigator Jack Blum told me: “There’s an understanding between the audited and the auditor. Each piece without context is okay. And people at the top are paid to sit with paper bags over their heads.” The Enron executives were masters of performance, demolishing any reporter or industry analyst who dared to question the efficacy of their statements. Business journalist John Cassidy argues that such corporate scandals arise in part from “the culture of auditing.” 2

Arthur Andersen’s complicity and issuances of clean bills of health eventually contributed to its own demise, as well as Enron’s. Observance of institutional goals went missing in both companies. While Enron’s top executives greatly enhanced their personal wealth, they devastated the incomes and future pensions of their employees, and the equity of the stockholders whose financial well-being they were duty-bound to protect. When signature firms like Arthur Andersen go down in flames, auditing institutions as a whole lose authority. As Dipak Gyawali, an international development specialist and onetime cabinet member of Nepal, put it: “Because of auditing scandals such as that of Arthur Andersen . . . , audit reports do not inspire much confidence and serious doubts crop up in many minds asking whether garden-variety audit reports have left much still undiscovered.” 3

While the case of Enron and Arthur Andersen is in the realm of American finance, some of which, as of late, has distinguished itself as ethically challenged to say the least, the fact is that the prevailing approach to “accountability” can enable flex activity to go on behind the veneer of the auditors’ clean bill of health.

Auditing the Audit

A brief look at the recent history of oversight and evaluation practices shows how ill suited they are to monitor the activities of today’s top influencers. In the past several decades, accountability has become associated with specific auditing practices in the United States, the United Kingdom, and other neo-liberal havens. These practices disconnect it from loyalty to and trust of the institution being audited and sever it from its original spirit. In the go-go 1980s, when Thatcher and Reagan were at the helm in the United Kingdom and the United States, the goal of refashioning the state in the image of the private sector motivated the migration of audits from their original association with financial management to other areas of working life.

The result was, as Michael Power, an experienced chartered accountant, as well as a professor at the London School of Economics, charts, the idea of audits exploded throughout society and permeated organizational life as the chief method of controlling individuals. The tools and approaches of accountancy became the means through which “the values and practices of the private sector would be instilled in the public sector,” as several anthropologists studying the subject have assessed. For instance, the UK’s Audit Commission, created in 1983 to ensure that local authorities used resources efficiently, took audit functions beyond the traditional role of financial accounting to encompass such tasks as monitoring “quality” and “performance,” and identifying “best practice.” Ensuring “value for money” through measuring performance outputs and the “effectiveness of management systems” became hallmarks of “good government.” The new definition of audit was soon applied widely: Audits were employed in public sector arenas such as education to evaluate employees, training, curricula, and research. In the United States, although cost-benefit analysis and similar management models were introduced into the Defense Department in the 1960s, it was not until the early 1980s that the UK-style audit began to be adopted widely in American government. 4

Auditing, which derives from accountancy, breaks things down into observable, isolated, and often quantifiable pieces, and then scrutinizes the pieces—typically with little or no regard for the whole. “Audit has thereby become the control of control,” as Power writes, “where what is being insured is the quality of control systems, rather than the quality of first order operations.” This practice is patterned after the audit’s first major application after finance: industry, where the audit employed rigid rules to the quality control and counting of mechanical items, such as nuts and bolts at a factory. Well-defined jobs had a clear list of tasks for which one individual was responsible. The audited performed discrete tasks and were not expected to know how the pieces fit together. 5

Let’s take a look at how that approach worked in just one instance of the elaborate maneuverings of Richard Perle, consultant, businessman, pundit, think-tanker, and government adviser—and Neocon core ringleader. As we saw in Chapter 6, while serving as chair (later member) of the Defense Policy Board in the first term of George W. Bush, Perle used that position as a platform from which to call for the overthrow of Saddam Hussein and pushed “information” manufactured by Ahmed Chalabi through state and private channels to help make the case for war. In his extensive operations abroad, he left many listeners with the impression that he spoke for the U.S. government. He also allegedly used state information for nonstate purposes, offering his defense-related clients sensitive information. In one instance, according to the Los Angeles Times , Perle advised clients of Goldman Sachs on investment activities in postwar Iraq soon after he and other board members had been briefed by the Defense Intelligence Agency and other classified sources. Also while on the board, Perle represented two companies in their dealings with the U.S. government: A major American satellite manufacturer retained him to help counter U.S. government allegations that the firm had illegally transferred technology to the Chinese, and a telecommunications company retained him to advise it on deals with China that the FBI and the Defense Department opposed for national security reasons. 6