At The Least, Former Enron Chiefs Are Guilty Of Moral Bankruptcy
In his fervent address to The Houston Forum last month, disgraced former Enron chairman Kenneth Lay brazenly denied any wrongdoing, insisting that his once “great” and “honest” company adhered to prevailing business practices.
“The Enron Task Force investigation is largely a case about normal business activities typically engaged on a daily basis by corporate officers of publicly held
companies throughout the country,” Lay defiantly declared. “The Enron Task Force is attempting to criminalize these very same business activities.”
Under Lay’s perverted code of honor, there is nothing wrong with implementing transactions that are ultimately intended to deceive if the transactions, legal or not, are “common practice” in Corporate America. The God-fearing Lay clearly believes that the Ninth Commandment – thou shalt not bear false witness – does not apply in matters of business, particularly if the deception is blessed by the best lawyers, accountants, and investment bankers money can buy. Shareholders, particularly small investors, are far too often the ones paying the price of such moral relativism.
It is remarkable that, despite more than a dozen executives with connections to the company pleading guilty to related crimes in the four years since Enron’s collapse, Lay has never accepted any responsibility for the widespread fraud at the organization he once led. Indeed, he has blamed Enron’s collapse entirely on former CFO Andrew Fastow, even though it was Lay who created Enron’s Darwinian culture where pushing the envelope and testing regulatory limits was the order of the day. Fastow merely embraced this “damn-thetorpedoes” corporate mindset. While it remains to be seen whether Lay had explicitly known or understood his former CFO’s illicit activities, the culture Lay created implicitly permitted them. Lay is a hypocrite for condemning Fastow for skimming a few bucks off the dishonest partnerships that the former CFO created. After all, executive self-entitlement also is very much a “normal” business activity.
Regretfully, too many corporate executives adhere to Lay’s twisted sense of morality and share Fastow’s insatiable greed. Consider the obscene $110 million executive pay package Delphi Corporation’s management recently awarded itself, which will enrich many of the same managers who participated in – or at a minimum ignored – the financial follies that contributed to the company’s bankruptcy filing. Meanwhile, Delphi’s rank-and-file are being asked to accept a significant cut in pay and benefits.
M. Michele Burns, Marsh & McLennan’s new CFO, is another case in point. According to The New York Times, Burns was paid more than $8 million in compensation and bonus for less than two years work at the troubled energy company Mirant Corporation. During her earlier stint at Delta Airlines, which like Mirant has filed for bankruptcy court protection, Burns received more than $1.4 million in compensation in her last year as CFO, a bankruptcy-proof pension worth at least $1 million, and free first-class airfare for her and every member of her family forever. The besieged airline, which demanded steep pay cuts and pension terminations from its workers, recently tried to rescind Burns’ free-tickets perk as part of its extensive costcutting efforts to stay airborne. Burns has let it be known she plans to fight to keep the benefit.
Like Lay, Delphi’s management and Burns can argue that their sweetheart deals are legal and that they, too, are adhering to “normal business practices.” But the excesses of the past decade have painfully taught us that we should be wary of executives who allow lawyers, accountants, and consultants to determine their moral compass. Sarbanes-Oxley notwithstanding, a company’s business integrity is ultimately determined by the relative honesty and ethics of its top management. As we have seen all too often, sometimes there is a very big gap between what is legal and what is right or just.
Therein lies the challenge that will befall the jurors who will judge Lay and former Enron CEO Jeffrey Skilling. They will essentially have to determine whether transactions that on the surface may be technically legal had been used to egregiously distort Enron’s true economic condition.
Enron’s accounting, though sophisticated, is not fundamentally difficult to grasp. The company created various partnerships and other so-called off-balance sheet entities, allowing it to mask its debt obligations and create the illusion that it was generating more cash than was actually coming in, a Wall Street accounting maneuver known as structured finance. Attorneys for Lay will no doubt emphasize that structured finance is a widespread corporate practice for bolstering earnings, although no company ever had the guile or brashness to leverage it to the degree that Enron did.
Still, federal prosecutors will face an uphill battle convincing jurors to convict Lay and Skilling because of Enron’s financial misdeeds. The proverbial line in the sand is difficult to legally demarcate. Those who are clamoring for Lay and Skilling to serve time must be tolerant of a jury that might well choose to give the men a pass. The case is not that clear cut, legally speaking. Sadly, moral bankruptcy is not yet a crime.