Enron, Skilling & Lay are the Symptoms, not the problem

Friday, May 26, 2006 at 02:18 PM

It certainly was good news that the Houston jury had the good sense to convict Ken Lay on all counts and Jeff Skilling on most counts.

In a fitting irony, the sentencing is set for 9/11/06, exactly five years after you know what, with Lay facing a maximum of 165 years in prison and Skilling looking at a maximum of 185 years.

But I think it's important to point out that the mindset and ethical standards that allow Enron's debacle to occur, and which fed the Global Crossing and WorldCom disasters, is the problem; Lay & Skilling are just the symptoms.

Start with the fact that the GAO compiled a report a few years ago
which found that businesses had announced 919 restatements due to accounting irregularities between 1/1/97 and 6/30/02.

You really need to think about that: 919 announced restatements.  In 4.5 years.  Over 200 a year.  Do you think that corporations restate earnings or profits for the hell of it?  It makes for bad publicity, certainly doesn't help the stock prices, and should be, in any rational business world, a source of shame for the restater.

But I'm pretty sure the business world doesn't see it that way any more.  The national culture has slid sufficiently far into sleaze that most business people seem to be more annoyed at the damn accounting rules that prevent them from making whatever financial announcements they want, than they are at their brethren who constantly create bad publicity by publicly saying "whoops! Forgot about that (bad debt, exaggeration of income, understatement of expense, other whoops).

In fact, I've seen one report that appears to try to shift the blame for the increasing number of securities fraud cases from the corporations that constantly misstate their financials to a pack of money hungry lawyers.  The theory?  "The growing number of companies restating their earnings because of accounting problems is making them ripe targets for plaintiffs' attorneys, who sue publicly traded corporations for investors."

The report does note, of course that "Federal securities-fraud lawsuits, the longtime bane of CEOs and the salvation for shareholders, rose 31% to 224 filings in 2002 from 2001."

And the reaction to a businessman reporting the news of the conviction of Lay & Skilling to a business audience?  Business leaders greet conviction with silence.  Not only that, but Hal Degenhardt, who made the announcement (& is a former director of the Securities and Exchange Commission's regional office in Fort Worth) later expressed something resembling sympathy for Lay & Skilling:

"Mr. Lay and Mr. Skilling, I think, are facing the pros- pect of a great deal of [jail] time, and in Mr. Lay's case, the prospect of never coming out of prison," he said. "There's tragedy here for everybody."

Degenhardt said he primarily sympathizes with Enron's employees, many of whom had their retirement funds tied up in Enron stock and lost their savings and their jobs as a result of the company's collapse. And Skilling and Lay had tragic downfalls as well, he said.

"Even just having the charges leveled against them -- it's a life-shattering experience," Degenhardt said.

The problem is the culture.  The national culture, the business culture, the regulatory culture, the banking and finance culture.  All of it.

The problem is that so many of our national business and political leaders now think the same way that Lay & Skilling did:  if the numbers are inadequate for your objective, lie about them.

The problem is that so many of our national business and political leaders now think the same way that Ronald Reagan did:  if you need to have vegetables but you want to serve ketchup, then ketchup is a vegetable.

The problem is that so many Americans of wealth and power and influence have been so influenced by Ronald Reaganism.  Because it has no substance, it is indeed all convoluted and unworkable theory that bears only one connection to the real world:  it intends to corrupt it.
We've reached the point where all our vegetables are nothing but ketchup.