Enronitis: Are Workers Immune?

by Dennis Jacobe, PhD
Gallup Chief Economist

Several major U.S. companies have gone bust in recent weeks. Of course, everyone is currently focused on the collapse of the energy-trading company Enron -- once the seventh-biggest corporation in the U.S. and the largest bankruptcy in U.S. history. Less widely known is that major telecom firm, Global Crossing, filed for Chapter 11 bankruptcy on Jan. 28, producing the fourth-largest bankruptcy in history. Almost underplayed has been the fall of Kmart -- once the third-largest retailer in the nation, the department store giant also filed for Chapter 11 bankruptcy last month.

Wall Street's current biggest fear seems to be that Enron is not an isolated case. Many money managers know that among the factors that built the boom of the late 1990s was the tendency of many major companies to push the envelope when reporting earnings and portraying their overall financial conditions. The attention the debacle at Enron is generating clearly has the potential to undermine public confidence in key institutions such as the public accounting profession, the Financial Accounting Standards Board, the Securities and Exchange Commission, company directors and top U.S. corporate management. The fear is that a growing lack of confidence that some dub "Enronitis" could easily envelop additional large companies and end up severely damaging overall investor confidence in the stock market.

Of course, Wall Street's fears should concern us all. The last thing that the much-anticipated economic recovery of 2002 needs is tumbling stock prices and weakening public confidence. The result could be a reverse "wealth-effect" and a double-dip recession.

What is not being talked about, however, is something of even greater concern -- worker confidence in the companies they work for. While most financial advisers strongly recommend against it, many workers heavily invest in the firms that they work for. These investments take forms such as pensions, 401ks and common stocks. And, while one can argue that this asset concentration is unwise, many employees maintain that they know a lot more about their company than they do about others available to them on Wall Street. So while confidence on Wall Street is of major concern, worker confidence in Main Street is of even greater importance.

The good news is that new Gallup Poll economic data* show that most workers continue to be optimistic about the prospects for their companies in the months ahead. Enronitis has not infected working America. Still, the key question is whether this means that U.S. workers are immune to Enronitis or alternatively, whether the incubation period for this new disease has some time to go. Regardless, it would be wise for policy-makers to do everything they can to inoculate the public against Enronitis in the weeks ahead.

Workers Are Optimistic About Their Companies

New Gallup Poll economic data (Feb. 4-7) show that about two out of three working Americans (67%) describe the financial situation of the company for which they work as good or excellent. This is up slightly from the 64% of employees who gave this same description in January and down slightly from the 68% of employees who gave this rating in December 2001. Importantly, only 7% of workers say that the financial situation of the company for which they work is poor.

Current Company Financial Situation

EMPLOYED ADULTS Feb. 4-7, 2002 Jan. 7-9, 2002 Dec 6-9, 2001
  % % %
Percentage "Good" or "Excellent" 67 64 68
Percentage "Only Fair" 25 27 24
Percentage "Poor" 7 8 7

Just about two out of three employees (63%) also say that the financial situation at the companies they work for is getting better. This is the same as the 63% of employees who said financial conditions were getting better in January and down slightly from the 64% in December 2001. Just over one out of four (27%) workers say the financial situation of the company they work for is getting worse, up from 24% in January and 23% in December 2001.

Direction of Company Financial Situation

EMPLOYED ADULTS Feb. 4-7, 2002 Jan. 7-9, 2002 Dec. 6-9, 2001
  % % %
Percentage "Getting Better" 63 63 64
Percentage "Getting Worse" 27 24 23
Percentage "Staying the Same" 8 11 12

Finally, seven out of 10 working Americans (70%) say that they think the financial situation at the company they work for will be good or excellent six months from now. This number is unchanged since January and up only one point from 71% in December 2001. Only 4% of workers say that they expect the financial situation of the company for which they work to be poor six months from now.

Company Financial Situation in Six Months

EMPLOYED ADULTS Feb. 4-7, 2002 Jan. 7-9, 2002 Dec. 6-9, 2001
  % % %
Percentage "Good" or "Excellent" 70 70 71
Percentage "Only Fair" 24 24 24
Percentage "Poor" 4 5 4

*These results are based on telephone interviews with a randomly selected national sample of 1,000 adults, 18 years and older, conducted Feb. 4-7, 2002. For results based on this sample, one can say with 95%confidence that the maximum error attributable to sampling and other random effects is +- 3 percentage points. In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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