Until recently, energy-trading giant Enron was hailed as a paragon of corporate governance. The firm's rapid ascent was credited to an ambitious leadership, which maintained solid earnings despite an aggressive expansion strategy that drained cash flow. Institutional investors fattened their portfolios with Enron's high-octane stock, and CEO Kenneth Lay hobnobbed with then-Governor George Bush at baseball games.

Yet behind the facade of success lay dirty secrets. Enron executives are suspected of concealing massive losses from shareholders through a series of balance-sheet tricks and reporting revenues that had little basis in reality. They have also been accused of funneling transactions through hundreds of off-shore accounts, evading proper scrutiny of their dealings. When Enron suddenly collapsed last December, the bankruptcy was more than just an embarrassment to the business-school pundits and mutual-fund managers who'd jumped on the bandwagon. Enron's demise, along with several other shady corporate catastrophes, signaled the need for a renewed emphasis on financial transparency.

"Markets are driven by trust and confidence, which have been undermined and shaken by the Enron escapade," says Ira Jackson, director of Harvard University's Center for Business and Government. "As we engage in a timely re-examination of the rules of the game, and as the pendulum inexorably swings back and corrects from an over-reliance on markets over morality, transparency will become the new mantra."

In years past, calls for transparency were usually aimed at corrupt developing-world regimes that were siphoning off aid earmarked for infrastructure improvements. This remains a concern, as many Western governments recall the Cold War-era machinations of men like Zaire's Mobutu Sese Seko, who accumulated a multibillion-dollar fortune despite lording over one of the planet's 10 poorest nations. "I think you have to have very clear guidelines for accountability with respect to delivery and implementation of [aid]," Senator Hillary Rodham Clinton told a crowd at this year's WEF Annual Meeting. "That's one of the reasons I often favor going around existing governments and through NGOs. You maximize your chances of avoiding corruption." But transparency advocates have realized that chicanery is scarcely confined to the developing world. "Now the focus is on the private sector in the developed world," says Mr Jackson. "This convergence is healthy, appropriate and needed. What's good for the goose proves to be needed for the gander." The gander is indeed desperate for reform, for Enron's bankruptcy has shaken an already creaky global economy. Blue-chip companies, such as GE and IBM, have been hit on concerns about the opaqueness of their earnings reports. And the sluggish economy may signal the end of the vaunted "superdollar"; the value of the US currency could finally plummet after a decade-long run as foreign investors rethink the value of corporate bonds.

The Enron mess might have been nipped in the bud had regulators been a bit less lax about their duties. As the world economy hummed along swimmingly in the 1990s, governments felt less inclined to meddle in private-sector affairs. That leniency meant less vetting of balance sheets, which increasingly used financial trompe l'oeils to inflate stock prices regardless of actual earnings. Tyco lost more than half its market value -- about $60 billion -- after investors became concerned that a complex web of partnerships was concealing massive debts. ImClone Systems, a New York-based biotechnology firm, is being investigated by federal authorities to see if it misled investors about the prospects for its flagship cancer drug Erbitux.

THEY'RE IN THE MONEY

The widespread use of options to bolster executive pay ensured that corporate officers were handsomely rewarded for these deceptions. Gary Winnick, founder of the failed fiber-optics outfit Global Crossing, cashed in $734 million worth of stock before questions arose over whether the company's revenue estimates had been inflated by a bookkeeping sleight-of-hand. And Enron CEO Lay infamously dumped millions worth of stock in the company's troubled twilight days, all while encouraging employees to purchase more and more equity.

A big part of the problem, says James O'Toole, a research professor at the University of Southern California's Marshall School of Business, is the sheer complexity of accounting rules, which leaves room for loopholes and shell games. "There is a lot of stuff buried in the footnotes that must be manifest and made clear," says Mr O'Toole, who advocates more plain-English guidelines. "Things that affect the public cannot be hidden... There has to be pressure to perform as opposed to faking it." Already, four US senators have proposed legislation that would curtail the writing off of stock-option costs, a deceptive tactic that, according to Citizens for Tax Justice, helped Enron escape $625 million in federal taxes between 1996-2000. And the Securities and Exchange Commission (SEC) recently broke with its laissez-faire tradition to issue guidelines for online financial postings, including a mandate that insider trades be filed electronically and made available for public inspection.

There is also a growing chorus of voices demanding better oversight of accounting firms, especially in light of Andersen's alleged complicity with Enron. In the United States, critics of the status quo have called for an overhaul of the industry's theoretical overseer, the Financial Accounting Standards Board (FASB). Though ostensibly an independent regulatory body, the FASB is composed largely of retired accounting executives, and the group's budget is provided by an industry-funded foundation.

Similarly troubled by the "big five" accountancies' carelessness, European financial regulators are also taking action. In February, Spanish authorities fined Deloitte & Touche €540,000 ($473,000) for its role in the failure of an audit client, Madrid-based brokerage Gescartera SA; it is the largest fine Spain has assessed against a big five firm. Spain has also established a solid "best practice" model by prohibiting accountants from providing auditing and consulting services to the same client -- a ban that US regulators are considering.

GOOD FOR THE ENVIRONMENT, TOO

Restoring consumer confidence may be the key aim of encouraging greater corporate transparency, but peeling back the veil of secrecy has additional benefits. Better reporting on the environmental impact of corporate policies could help placate some anti-globalization critics, who rightly fear private-sector doublespeak on such issues as global warming, waste disposal and deforestation. Harvard's Mr Jackson points to the Toxic Release Inventory of 1986 as a prime example of tough transparency laws benefiting the environment; the regulations prescribed severe penalties for failure to disclose publicly pollution threats, and there has since been a 45% reduction in the number of toxic releases in the US.

Even before Enron's collapse, several NGOs had formed to pressure corporations into better reporting on environmental and labor issues. A US-based NGO known as the Corporate Sunshine Working Group is lobbying the SEC to toughen its environmental disclosure requirements, such as ordering that corporations quantify and disclose their emissions of greenhouse gases each year. The Global Reporting Initiative, convened by the Coalition for Environmentally Responsible Economies, has been working with companies on producing revised annual reports that include data about their environmental and social programs.

The current battle against terrorism may also receive a boost from greater private-sector transparency. Al-Qaeda and other terrorist organizations are adept at using legitimate financial institutions to launder their money, and law-enforcement officials fear industry consolidation will make these suspicious activities even harder to trace. "Money laundering seems to be a technical word, but this technical word refers to atrocities," says Laurent Fabius, France's minister of the economy, finance and industry. "It means drugs, it means slavery, it means terrorism, and when we talk about this with the public, we must explain how we must fight these atrocities."

To that end, several governments are reworking banking secrecy laws to suit this more dangerous era. Issam Fares, deputy prime minister of Lebanon, notes that his nation recently revised its banking regulations to permit the lifting of secrecy when accounts are suspected of links to terrorism or narcotics trafficking.

There is, of course, notable grumbling about some potential aspects of transparency. US Vice-President Dick Cheney has been fighting a bureaucratic request that he turn over notes regarding his dealings with Enron officials, claiming that such a demand threatens the executive branch's ability to conduct confidential business. Businesses fret that they might be compelled to reveal intellectual-property secrets, though Mr Jackson scoffs at this complaint: "No sane observer is talking about 'socializing' confidential corporate transactions... Transparency won't hurt honest businesses."

In fact, greater transparency can be a tremendous boon to companies seeking a leg up in competitive markets. China has been plagued with serious corruption that drains up to 16% of GDP, according to the Carnegie Endowment for International Peace. Intent on turning Shanghai into a global financial capital, the nation recently instituted a reform program that requires companies to issue quarterly reports (as opposed to the traditional two per year) and publish investor alerts when earnings are projected to dip 50% or more. The new rules have already boosted the reputations of two prominent mainland companies, China Eastern Airlines and Sinopec, which Standard & Poor's recently ranked as more transparent than any of Hong Kong's top firms -- and thus more appealing to potential foreign investors.

Given such benefits, it's puzzling to many transparency advocates why any company -- or government -- would resist post-Enron calls for more and better disclosure. As Mr Jackson notes, "transparency isn't just on the list of 'nice things to do'... Transparency is the updated version of [Louis] Brandeis's dictum that sunlight is the best disinfectant." And, quite possibly, the best elixir for an ailing global economy.