Investors might find some solace in the convictions of Kenneth Lay and Jeffrey Skilling, former CEOs of Enron Corp. Yet for all of the lies in the executive suite, there was a blunt observation worth noting about the value of securities analysts' work and their ability or zeal to comprehend financial filings.
At the trial, according to a news report, Bruce Collins, an attorney for Mr. Lay, suggested in regard to certain financial information that Enron's SEC filings fulfilled the company's disclosure obligation to investors, particularly with analysts, who have the job of examining such filings.
The news report said Paula Rieker, Enron's former corporate secretary and deputy investor-relations chief, testified an "astute analyst might catch this." But she noted, her experience has shown that few analysts closely read SEC filings, according to the news report. "Most analysts relied on the earnings release and the quarterly conference call" with Enron executives, she was quoted as testifying.
Investors won't have Messrs. Lay or Skilling to worry about anymore. But they will have analysts with whom to deal. The lesson is investors ought to scrutinize and measure their analysts for the value of their work. Academic research shows active managers generally underperform indexes. Some Enron analysts, at least, provide evidence of why that is.