US News & World Report
A verdict on Enron’s top two executives…and on an entire era
By Kim Clark and Marianne Lavelle
If nothing else, it was poetic justice. Ken Lay and Jeffrey Skilling ignored conventional wisdom, scoffed at warnings of failure, and reveled in the wildly risky business bets that turned their once obscure gas pipeline operation into one of the country’s biggest, most innovative, and most admired companies. Then the two executives scoffed at critics who wondered if Enron’s accounting wasn’t, well, a bit too innovative–and shrugged off insiders who warned of financial and ethical troubles. Finally, at their fraud trial, Lay and Skilling ignored conventional legal wisdom. They took the stand and swore to the jury that Enron failed not because of fraud but because attacks by short-sellers and journalists destroyed the faith of banks and investors in the company.
Last week, the very strategies and character traits that had made Lay and Skilling rich and powerful turned them into felons. With the resounding guilty verdicts by the federal jury in Houston last week, both men lost their biggest bet ever. They now face prison sentences that could keep them behind bars for the rest of their lives.
The former Enron CEOs remain free pending probable appeals and say they’ll continue to fight. Lay reiterated his claim that one of the most dramatic corporate collapses in American history was nothing more than a simple business failure. “I firmly believe I’m innocent of the charges against me,” the 64-year-old son of a minister said after he and his family wept and prayed over his conviction. “Obviously, I’m disappointed,” said a remarkably composed Skilling. “But that’s the way the system works.”
“Humble.” Even sympathetic observers say that the executives helped slam the prisoncell doors shut on themselves. Sheila Kahanek, a former accountant who is the only former Enron employee of 20 charged so far to win acquittal, says all the Enron defendants have “had an uphill battle all the way.” They found it difficult to build their cases because prosecutors had scared off scores of potential defense witnesses. In addition, they’ve had to face local juries who feel betrayed by the company that has forever linked their hometown with corporate skulduggery. While Kahanek says she hasn’t studied the evidence enough to pass judgment on the Lay and Skilling convictions, she says they should have learned at least one thing from her legal victory: When you take the stand in your own defense, “you have got to be humble yet passionate. … You have to let your vulnerability come out.”
Other defense experts agree that’s where Lay and Skilling failed. The strategy of denying that any crime was committed–despite the testimony of eight former employees who pleaded guilty to fraud–was a long shot from the beginning, says Jim Parkman, the attorney who won acquittal for former HealthSouth CEO Richard Scrushy in his accounting fraud trial. Parkman, who didn’t call Scrushy to the stand, argued that
Scrushy’s underlings hid from their boss their cooking of the books. In addition, Parkman says every defense attorney knows that executives make poor witnesses in their own defense. Executives’ egos and arrogance often make them try to take control and assume command of their defense, Parkman says.