Friday, May 26, 2006

Column on Enron Convictions (TIME VALUE)

The Enron Case in Focus

Tibor R. Machan

After the jury came back with a guilty verdict against the two major
players in the massive Enron fraud case, Kenneth L. Lay and Jeffrey K.
Skilling, there could have been cheers going up around the country
concerning how well justice is pursued in a relatively free market,
capitalist society. For that is one of the major lessons here.

A free market, capitalist society is the best place where corporate?or
white collar?criminals are prosecuted. Indeed, it is in such a system
alone that it?s possible to identify bona fide crimes and distinguish them
from mere regulatory infelicities that are too often nothing but
pre-emptive, precautionary measures politicians and bureaucrats undertake
in defiance of due process and civil liberties.

Unfortunately, too many didn?t focus on the way justice managed to be
served in the context of a largely free society but, instead, cheered how
big corporations en masse have been dealt a significant blow. As a report
in The New York Times put it,

...the testimony and the documents admitted during the case painted a
broad and disturbing portrait of a corporate culture poisoned by hubris,
leading ultimately to a recklessness that placed the business's survival
at risk. "Enron is one of the great frauds in American business history,"
said James Post, a professor of management at Boston University. "But it
is also a symbol of a particular era of management practice. The excesses
of Enron point pretty clearly to what was going on in mainstream companies
across the business landscape in the 1990's."

I am no attorney and am not familiar enough with the details needed so as
to give a confident assessment of whether justice was fully served here.
The trial of Lay and Skilling, did appear to bring to light that the
defendants perpetrated massive fraud and clearly violated both their moral
and legal fiduciary duties. From the perspective of business
ethics?namely, the set of standards that guide professionals such as Lay
and Skilling?these men appear clearly to have engaged in malpractice.

Yet these kinds of cases are sadly marred by mixing standards of
unethical versus illegal conduct. Government regulation subjects the
profession of business more than most others?and certainly more than, say,
journalism and the ministry, the two fields the U. S. Constitution
unjustly picked for special protection when it should have provided all
profession with it?to policies of prior restraint and, accordingly,
government harassment. Such government regulations help to confuse bona
fide crime with unethical behavior. The two are different in a free
society?the first must involve violation of the rights of others, the
second the violation of standards of professional propriety.

Even apart from this confusion, there is in the present case the
unfortunate eagerness with which too many influential commentators?such as
The Times?s analysts and those they call upon to comment on the
case?condemn the entire profession of corporate managers on the basis of
what happened at Enron. It is just false that the ?excesses of Enron point
pretty clearly to what was going on in mainstream companies across the
business landscape in the 1990's." Justice and morality demand that cases
be considered individually and only those who have been subjected to
careful investigation and subsequent prosecution be treated as legally
guilty if so found by a jury. It is scandalous, and indeed a form of
professional misconduct itself, for a professor of management to rush to
judgment about all ?mainstream companies across the business landscape?
who were not charged, let alone convicted, of any crimes.

Alas, business has been the black sheep of the professions from time
immemorial. History is replete with major and minor cases of prejudice
against traders, merchants, and other members of the profession of
business. So, much of the bluster following the conviction of Lay and
Skilling is, sadly, par for the course.

In a recent column I noted the contrast between the nuanced treatment
terrorists received in Steven Spielberg?s movie Munich and the crude
picture given of business professionals in the 2005 movie Enron: The
Smartest Guys in the Room. You can add to this the contrast between how
crime is viewed when it occurs at various universities?such as the
University of California at Irvine where last November, the liver
transplant program had been suspended after the government revoked UCI?s
certification in the wake of a report by the Los Angeles Times concerning
some 32 patients who died over the past two years and UCLA hospital?s body
parts selling scheme?and when it occurs at business corporations. Did what
happen at UCI and UCLA amount to ?excesses [that] point pretty clearly to
what is going on in mainstream [university hospitals] across the [medical]
landscape?? QED.

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