SYNOPSIS: John Chambers is the paragon of corrupt accounting tricks and abuse of a valuable stock price. The scariest thing is that everything he did was legal!

Today, in its Waco economic forum, the Bush administration will try to convince the country that everything is under control — that the economy is mending, that "shady" business practices are no longer a problem. To that end a carefully chosen audience will listen to speeches by administration officials and selected models of corporate probity. Among the speakers announced last week was John T. Chambers, C.E.O. of Cisco Systems.

They really don't get it, do they? One could hardly have picked a better example of what's wrong with the administration's whole approach.

Two years ago Cisco was the world's most valuable company, with a market capitalization of more than $500 billion. Mr. Chambers was among the world's best-paid executives, receiving $157 million in 2000. Cisco was perceived as a company that combined new-economy glitz with old-fashioned solidity, that was on the cutting edge but made real products and earned real profits.

In short, people thought about Cisco the same way they thought about Enron.

That's not a strained comparison. Even when Cisco was riding high, an analysis in Barron's dubbed it the "New Economy Creative Accounting Exemplar." The company's specialty was using its own overvalued stock as currency — paying its employees with stock options, acquiring other companies by issuing more stock. Thanks to loopholes in the accounting rules — loopholes defended with intense lobbying — these transactions allowed executives to progressively dilute the stake of their original shareholders, without ever declaring this dilution as a business cost.

The resulting illusion of profitability sustained the stock price, making more questionable deals possible. Some analysts flatly called Cisco a pyramid scheme.

When Enron's financial house of cards collapsed, $80 billion of market value vanished. Cisco hasn't collapsed, but its market capitalization has fallen by more than $400 billion. Nobody from Cisco management — ranked No. 13 in Fortune's "greedy bunch" — has been arrested. But then neither has anyone from Enron.

Some cynics attribute the continuing absence of Enron indictments to the Bush family's loyalty code. But the alternative explanation is both innocent and chilling: Enron executives may have deluded and defrauded their shareholders without actually breaking the law. What Cisco did was definitely legal.

Since Enron collapsed, administration officials have insisted that no new laws are needed to reform corporate America, only enforcement of existing laws. The administration endorsed a bill imposing modest reforms in accounting only after doing everything it could to block it. And as soon as the bill was passed, the administration began issuing "guidance" to federal prosecutors that will undermine the law's intent on whistle-blower protection, document shredding and more. Officials clearly still think the old law was good enough.

But the Cisco story, like the absence of Enron indictments, demonstrates just how much self-enrichment corporate insiders can get away with while staying within the letter of the law. The handful of executives who have been arrested aren't masterminds — on the contrary, given the legal ways other executives got rich while their stockholders lost billions, the perp-walkers should be featured on a special corporate edition of "America's Dumbest Criminals."

Now the administration is sounding the all clear — we've passed a bill, we've arrested five people, it's all over. But the work of reconstructing corporate America has barely begun.

The next step, surely, is dealing with stock options. It's not just that companies overstate their profits by failing to count options as an expense. Huge grants of options also give executives an incentive to do whatever it takes to produce a short-term bump in the stock price — if one year of illusory success can net you $157 million, who cares what happens later?

Byron Wien of Morgan Stanley recently told a group of security analysts that "stock options malevolence" is at the root of corporate scandal, and that "anyone who says that stock options aren't an expense destroys his credibility on all other issues." Well, Mr. Chambers's company still refuses to count stock options as an expense. The administration has said that it opposes rules that would require Cisco to change its accounting, and the choice of Mr. Chambers as a speaker seems to be a reaffirmation of that position.

As I said, they just don't get it.

Originally published in The New York Times, 8.13.02