A Fish Called Jeffrey: 'Disappointed' after Enron

JURIST Contributing Editor Nancy Rapoport of the University of Houston Law Center says that the 24-year prison sentence handed down for former Enron CEO Jeffrey Skilling leaves us all disappointed, not necessarily in the sentence, but in the corporate conduct that led to Enron's collapse and the huge losses that entailed...



In one of my favorite scenes in the movie A Fish Called Wanda, Kevin Kline's character opens a safe in which his ill-gotten goods had been stashed. Finding the safe empty, Kline's character says, in a singsong, frustrated tone, "Disappointed!" Jeffrey Skilling used the same term—"disappointed"—to describe his 24-year sentence yesterday. And in both cases, the understatement reaction created a jarring note.

Disappointed? Skilling's 24-year sentence is one shy of Bernie Ebbers's 25-year record white-collar sentence. (Although I doubt that Skilling will drive himself to his medium-security prison in a Mercedes, the way that Ebbers did.) Skilling's sentence ties with the first iteration of Jamie Olis's sentence, which was reduced to six years on rehearing. Even with time off for good behavior, Skilling will be an old man when he emerges from prison, assuming that his appeals all fail.

And the appeals are likely to fail. Even the willful blindness jury instruction — which is probably too close to comfort to the civil negligence standard that the Enron plaintiffs will emphasize — may not be considered reversible error. Moreover, the "honest services" portion of the appeal, arguing that Skilling's acts weren't designed to enrich himself but were designed to help Enron, is going to fall flat. Skilling wasn't a middle-manager, behaving the way that company-drawn incentives wanted him to behave. He created those incentives in the first place. Like the bad version of mark-to-market accounting, he can't be on both sides of the equation at once: creating incentives for unreasonable company behavior and then complaining that he was only doing what the company had asked him to do. Skilling, despite his claims of innocence, will almost certainly be spending roughly a quarter of a century in the same type of federal prison that houses much more violent offenders.

Before we spend too much time focusing on Skilling's reaction to yesterday's sentence, let's remind ourselves of a few things: he is a real human, with real friends and family, each of whom know him very differently from the way that we who read about him "know" him. We can't assume that his lack of affect in reaction to his sentence is diagnosable, in a DSM-IV kind of way, although I'm sure that there will be people who will call him a sociopath. (He might be a sociopath, or he may just be in shock. We just don't know enough about him to be able to make any real conclusions.) What we do know is that he has insisted on his innocence, and his insistence didn't ring true with the judge or the jury.

Skilling undoubtedly truly believes that his activities were in Enron's best interest and that his ideas — apart from their execution by less-brilliant people than himself — were visionary. In a way, what Skilling, Lay, and Fastow did (along with their many collaborators) was very different in kind from, say, the $5 "gamble" on the Ford Pinto's tendency to explode when rear-ended. Ford engaged in cost-benefit analysis and decided that the extra $5/car to make the Pinto safer wasn't worth the expense. Enron, on the other hand, saw no downside to moving losses off its balance sheet: it was simply forestalling any too-early market reaction to creative, but doomed, ideas. Viewed through a cost-benefit lens, perhaps Enron was less culpable than Ford. (But try telling that to people whose pensions disappeared in less than a month at the end of 2001.)

What we're learning from Enron is that incentives dictate results, and a company that prides itself on cutthroat behavior and short-term rewards will easily go from bending the truth to lying outright. What we're learning from other corporate scandals — such as the backdating of option grants and the use of pretexting to get information about leaks of board deliberations — is that lying is still at the heart of most bad decisions.

Here's a clue: when the advice to engage in an action starts with the sentence, "Now, first you're going to have to lie a bit," you probably shouldn't listen to the rest of the advice. Without the lies, there would have been no Nigerian barge "sales" from Enron to Merrill Lynch. There would have been no dramatic profits from stock options that "happened" to be granted on fortuitous days. And Patricia Dunn would probably still be the Chair of the Board of H-P.

Disappointed? We're all disappointed:
  • that the checks and balances inside and outside Enron didn't work;
  • that the board of directors gave Enron and Andy Fastow free reign to engage in massive self-dealing;
  • that Enron's internal incentives encouraged its workers to create deals that resulted in short-term, paper profits rather than long-term, real value;
  • that the increasingly outrageous schemes that Enron created to hide its losses quarterly and annually kept Enron alive long enough to ruin the lives of thousands of investors gullible enough to invest in Enron's stock;
  • that the investment banks and analysts engaged in quid-pro-quo deals to prop up Enron's paper fortunes;
  • and that no amount of governmental regulation can prevent more Enrons or other corporate idiocies from happening every day.

Nancy B. Rapoport is a professor of law and the former dean of the University of Houston Law Center.


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