JURIST Guest Columnist Nancy Rapoport, dean of the University of Houston Law Center, says that although the convictions of Kenneth Lay and Jeffrey Skilling in the Enron corporate fraud trial offer several important lessons, it's not clear that all of them – or any, for that matter – will actually be learned….

By any measure, Enron cost us plenty. After billions fleeced from shareholders, millions spent by electronic and print media covering the various trials, and thousands of hours selflessly given by jurors and alternates, we can be forgiven if we deign to look for potential returns on our collective “investment” in Enron. Perhaps the final accounting of our investment will take shape, Raptor-like, in items not found on any balance sheet: in lessons that might stand the test of time and extend beyond the sentences that Jeff Skilling and Ken Lay will receive on 9/11. Here are some top contenders for consideration:

Potential Lesson #1: Corporate America has seen the light, and it won’t cheat any more. When Richard Scrushy won acquittal with his “duh” defense, ne’er-do-well CEOs across the land probably smirked and breathed a sigh of relief. The convictions of Skilling and Lay changed those sighs into sharp intakes of breath [1], and therefore, corporate America will be kinder and gentler (and more honest) in the future.

Likelihood of learning Lesson #1: Zero. Do I believe that corporate America is going to give up outright cheating and shading the truth? No, because there will always be people who thrive on skirting the edge of ethical behavior. (My husband calls it “casting your shadow across the ethical line.”)

Let’s face it: Honest people who would never broach the line between truth and lies aren’t going to spend much time thinking about the Enron verdicts, because their world and Enron’s world of lies and excesses are galaxies apart. And extremely intelligent cheaters won’t spend too much time thinking about the verdicts, either; they’ll assume that their brains will still easily distinguish them as the smartest guys in the room. (If you don’t understand something, how you can possibly hope to prosecute it?)

If anything changes in corporate America, it will be the tools employed by corporate miscreants. Instead of flawed mark-to-market accounting and fake special purpose entities, up-and-coming cheaters will backdate stock options (the current scandal du jour) or create other ways of siphoning wealth from the corporate fountain of plenty. Only the “mostly honest” [2] business person is going to weigh temptation against the Enron verdicts, and my guess is that even that person will forget all about the verdicts in record time.

Enron happened in part because a lot of people broke a lot of rules. Take a look at Ken Lay’s testimony during the criminal trial: “Rules are important, but they should not … you should not be a slave to the rules, either.” [3] I can’t possibly be the only person who read about Lay’s testimony and immediately thought of three quotes: first, Leona Helmsley’s famous explanation: “We don’t pay taxes. Only the little people pay taxes.” [4] Second, for those with a love for Shakespeare, the last act in Henry V:

O Kate, nice customs curtsy to great kings. Dear Kate, you and I cannot be confined within the weak list of a country's fashion. We are the makers of manners, Kate, and the liberty that follows our places stops the mouth of all find-faults. [5]

And third belongs to Rousseau’s recollection of the thoughtless saying of a great princess, ‘who, on being informed that the country people had no bread, replied, ‘Let them eat cake.'” [6]

Not only did Ken Lay not follow the rules when the rules didn’t suit him, he didn’t even follow the rules of the courtroom just before the verdict was announced, choosing to sit with his wife instead of with his attorneys when the verdict was read aloud. Lay also broke the rule of logical defendant behavior by talking in public and on the web about his case. In his own blog — updated after the verdict — he expressed shock at the jury’s determination of guilt [7]. Perhaps, if he’d paid more attention to the accounting and corporate governance rules, and to the rule of common sense that suggests that a criminal defendant let the defense lawyer (and not the defendant) do the heavy lifting, Lay wouldn’t have had to experience this particular form of shock.

Potential Lesson #2: Just because “everyone does it” doesn’t mean it’s the right thing to do.

Likelihood of learning Lesson #2: 30%. Put another way, “If the enemy is an ass and a fool and a prating coxcomb, is it meet, think you, that we should also, look you, be an ass and a fool and a prating coxcomb?” [8] Sure, traders in several energy companies were round-tripping electricity in and out of California and reaping obscene returns for re-importing the power; in fact, the California regulatory climate virtually served as a co-conspirator that enabled that type of behavior. But the gloating exhibited by some Enron traders (“Burn, baby, burn!”) went beyond the pale, and anyone either contemplating or engaging in line-blurring behavior may now be motivated to adopt a more civil tone—especially when communiqués such as telephone-call recordings and emails can return to haunt you. Where is Rose Mary Woods when you need her?

If you’re a corporate executive, which of these lessons will you draw from the Enron verdicts: that you must use your own common sense rather than simply relying on the advice or good will of others (good); or that no matter how much you try to double- and triple-check your actions, you’ll be second-guessed when things go south (bad)?

Potential Lesson #3: Enron wasn’t anything special, in terms of greed overcoming common sense.

Likelihood of learning Lesson #3: This lesson might actually “take,” because Enron really wasn’t all that special. WorldCom’s fraud was just as bad, and Tyco’s had much better sound bites, video clips, and interior décor (recall the $6,000 shower curtain and the $15,000 umbrella stand, both of which would have been readily welcomed in the second-hand store opened by Linda Lay when the family fortunes started down the slippery slope.) We’re in “[r]ose is a rose is a rose is a rose” [9] territory here.

Really, Robert Fulghum was right when he wrote All I Really Need to Know I learned in Kindergarten [10]. Perhaps Skilling, Lay, and others will spend time relearning some basic rules of business:

1. Don’t assume that everything is what it seems.
2. Don’t bet twice with the same money.
3. If it looks too good to be true, it usually is.
4. Character counts. Talking about character doesn’t. Character is about actions, not words, and it’s built over a lifetime of making the right choices, even in the midst of temptation.

The popular credit-card advertisements might sum up Enron’s lessons this way:

(c) 2006 Nancy B. Rapoport. All rights reserved. For just one more day, I’ll get to remind people that this essay reflects only my own views and not those of the University of Houston or its faculty or administration. After 5/31/06, I become a Professor again and regain my free speech rights. In the meantime, special thanks go to Jeff Van Niel and Alex Kopatic for their wonderful edits.

Notes

[1] That juxtaposition isn’t a one-shot comparison. See Scrushy feels sympathy for Lay, Skilling, Business Week, May 25, 2006

[2] Is that like “freshly dead”? Young Frankenstein (CBS/Fox 1974).

[3] http://www.msnbc.msn.com/id/12800157/

[4] http://www.bartleby.com/66/43/27743.html

[5] Henry V, V, ii (from http://www.amk.ca/quotations/shakespeare/page-10).

[6] Sixth book of the Confessions: Discourse sur l’origine et le Fondement de l’Inégalité Parmi les Hommes, 1754

[7] http://www.kenlayinfo.com/public/default.aspx

[8] Fluellen, in Henry V, IV, i, (http://www.online-literature.com/shakespeare/henryV/19/). Our moms put this one differently: “If all of your friends want to jump off the roof, does that mean that you should jump off the roof, too?”

[9] From http://en.wikipedia.org/wiki/Rose_is_a_rose_is_a_rose_is_a_rose: “The sentence ‘Rose is a rose is a rose is a rose.’ was written by Gertrude Stein as part of the 1913 poem Sacred Emily, which appeared in the 1922 book Geography and Plays. In that poem, the first ‘Rose’ is the name of a woman.”

[10] 15th rev. ed., May 4, 2004.

Nancy Rapoport is dean and professor of law at the University of Houston Law Center
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