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July 6, 2006

Ken Lay and the Enron Myth

Ken Lay 070606.jpgFormer Enron chairman and CEO Ken Lay died yesterday of a heart attack and, given the stress that Mr. Lay had endured over the past five years, such a fate is certainly not surprising. However, my sense is that the heart attack was merely the physical manifestation of what really killed this proud, talented and flawed man -- his inability to overcome the Enron Myth and the societal implications of it.

By now, we all know the myth -- Enron was merely an elaborate financial house of cards hidden from innocent and unsuspecting investors and employees by a deceitful management team led by the greedy and lying Mr. Lay. The Enron Myth is so thoroughly accepted that otherwise intelligent people reject any notion of ambiguity or fair-minded analysis in addressing facts and issues that call the morality play into question. The primary dynamics by which the myth is perpetuated are scapegoating and resentment, which are exhibited everywhere:

The Houston Chronicle's business columnist ridiculing Mr. Lay and calling for his conviction on almost a daily basis throughout the trial;

The community outpouring of celebration over the guilty verdict against Mr. Lay and the self-righteous indignation over his continued claim that he committed no crimes;

A Houstonian interviewed on radio yesterday contending that she was unsatisfied because Mr. Lay's death had allowed him to escape appropriate punishment;

A prominent Houston-based blogger mocking Mr. Lay's death (here and here);

Without a smidgen of evidence, a Houston criminal defense attorney suggesting during an interview on MSNBC yesterday that Mr. Lay may have committed suicide to void his conviction.

These are but a few examples of the frequent eruptions from the cauldron of societal bitterness over Enron that are palpable reminders of the fragile nature of civil society. The Enron Myth conveniently serves to obscure that which most people do not want to confront. Loss, fear, and anger expose our essential human insecurity -- Christians sometimes refer to it as our "brokenness." The vulnerability that underlies such insecurity is scary to behold, so we use myths and the related dynamics of scapegoating and resentment to distract us.

Therefore, a wealthy and powerful businessman who is easy to resent becomes a handy scapegoat. We rationalize that he did bad things that we would never do if placed in the same position and thus, he is deserving of our punishment. That the scapegoat is portrayed as greedy and arrogant -- just as we are -- makes the lynch mob even more bloodthirsty as it attempts to purge collectively that which is too sordid for its members to face individually.

As noted in this prior post, even the Task Force prosecutors have admitted that the legal case against Lay was extraordinarily weak. But the power of the Enron Myth and the real presumption in the criminal case against Mr. Lay are such that even presumably fair-minded jurors dispense with critical thinking skills when confronted with supposedly the biggest business conspiracy in the history of federal prosecutions. Rather than seeking the truth regarding that alleged mass conspiracy, the jurors were content with a prosecution that cast Mr. Lay as a liar about Photofete and his company line of credit, and ignored the paucity of evidence of any alleged massive conspiracy or even the true reasons why Enron collapsed. The myth is so pervasive and accepted -- why bother with the truth?

The carnage of the Enron Myth and similar myths is now stacked high -- the destruction of Arthur Andersen, the vapid Enron-related Congressional hearings, the shallow Enron documentary, Martha Stewart, Jamie Olis, Daniel Bayly, William Fuhs, Frank Quattrone, Hank Greenberg, Mr. Lay -- the list goes on and on. In the wake of such destruction of wealth and lives, the public is even less willing to confront the vacuity of the myth and the destructive dynamics by which it is perpetrated. In fact, any challenge to the myth is now commonly met with derision and appeals to even more resentment over the Enron failure.

Such syndromes are not only an abuse of our justice system, but a serious affront to civil society. Ken Lay was no criminal. Did he fudge the truth? Maybe. But even if so, did his lies justify public humiliation, a physically-draining criminal trial, and a life prison sentence? Not in a truly civil society.

Ken Lay's death is a terrible tragedy for his family and friends, and my family's thoughts and prayers are with them. But the larger tragedy is that a myth has again played out as "justice" in our criminal justice system while distracting us from examining what really happened at Enron, understanding the benefits and risks of such a company, and educating ourselves on how to take advantage of such benefits while hedging those risks prudently.

Such a sober undertaking is not as easy as rationalizing a financial failure by calling a rich man a crook and reveling in his demise, but it's far more likely to result in a better -- and far more honest -- understanding of investment and markets, as well as ourselves.

Posted by Tom at July 6, 2006 5:35 AM |

Comments

Ken Lay's trial came down to a credibility determination. Lay told one story and the prosecution witnesses told another. Lay told falsehoods on the witness stands about issues such as Photofete. Does that mean that the jury convicted him because of Photofete? No. It means that when they saw him being dishonest in small things, they could reasonably determine that he was being honest in big things.

Tom, as a trial lawyer, I'm sure you've used that reasoning with jurors many times. I'm also sure you've told your clients that even if a collateral issue is unpleasant, they must tell the truth on it. Because a jury will crucify you if they catch you lying.

Were the government witnesses untainted? Of course not. Many had plea deals and were hoping for a substantial-assistance sentence reduction. But, that is the case in probably 90% of criminal cases in federal court. When I was a federal law clerk, Almost every criminal trial I saw involved a confidential informant or co-conspirator who was ratting out people in hope of a more lenient sentence. Is that ideal? I don't know. But, it's the way it is.

Tom, I respect your opinion on these issues--even if I disagree with you. But, it seems to me that you are focused on the inequities of the white-collar criminal-justice system. To the extent there are inequities in it--which I don't doubt there are-- I don't seem them being that different from the inequities in the criminal-justice system as a whole. You speak of the presumption of guilt instead of innocence. I wholly agree. But if you think there was a presumption of guilt against Skilling or Lay, look at what it is against a person charged with dealing crack.

I am a civil litigator and appellate lawyer. In my experience, it is much more difficult to win a plaintiff's civil case than to convict someone of guilt beyond a reasonable doubt. And, the appellate courts scrutinize civil verdicts much more closely. Evidence that would never pass muster in a civil case against a corporation is readily accepted in a criminal case. The use of "junk science" in criminal cases goes relatively unchallenged. Perhaps it is the imbalance in resources of defendants. Perhaps society believes those criminal defendants are more expendable. I'm not sure. But, I see that the imbalance is there.

Posted by: David George Author Profile Page at July 6, 2006 7:04 AM

David, thanks for your observations. Although I do think that the criminalization of business raises issues relating to business judgments that do not exist in say, a drug case, a brief review of my blog archives will reflect that I have raised similar reservations about drug prosecutions, death penalty cases, juvenile proseuctions and the like. It's just that I'm a business litigation lawyer and much of the focus of this blog is business-related that I emphasize the injustices in business-related prosecutions here.

By the way, in regard to the prosecution using primarily cooperating witnesses to convict Lay and Skilling, I really do not have a problem with that, apart at least from my reservations about criminalizing corporate agency costs in the first place. I do have a big problem with the government threatening witnesses who have exculpatory testimony for Lay and Skilling with indictment if they were to testify for Lay and Skilling.

Again, thanks for your comments.

Posted by: Tom K. Author Profile Page at July 6, 2006 8:08 AM

I was shocked to see so much vitriol yesterday as well as plain downright un-logical accusations of his "death". I saw threads where people were thinking Ken Lay faked his death after he got a "secret" Presidential Pardon. (What?!!)

The biggest thing that convicted Ken Lay was his ego. It was a classic Greek tragedy of historical proportions.

I don't think his death serves anyone and I find it very sad for all concerned. His family will now have to carry on the fight against his estate. I can't imagine Lay wanted that burden on his family.

The moral of the story: Being on the receiving end of Federal Prosecutors is a very bad place to be no matter how rich, how powerful or how innocent you may be. The scary part to me is how untenable the situation for a "normal" person it is becoming.

When you talk to Second Amendment right to bear arms supporters, one of the things cited for having such rights is to keep the Federal Government in check; the Government needs to know who is "boss". How is this power to convict being checked? It doesn't seem that it is or at least, not very easily.

Isn't that funny? We all used to be scared of "Big Brother" government and it seems like we were looking the wrong direction. We should have been looking for "Big Brother Court System".

Thanks for your cogent thoughts on this all along. It will be interesting to see what happens next.

Posted by: ReeC Murphey Author Profile Page at July 6, 2006 9:05 AM

Although I did not agree with a lot of what he did and said, Mr. Lay went down fighting, which is noble. Reminds me of William Jennings Bryan in "Inherit the Wind". It is very tasteless how so many people piled on when he died. The railroad murderer guy had more supporters. I hope Mr. Lay has found peace, and his family and friends can find comfort and solace.

Posted by: Kenneth Author Profile Page at July 6, 2006 9:10 AM

Tom:

As a business idiot, I have no basis for judging who lied and who didn't lie with Enron. I have no appreciation for who/what was right and who/what was wrong at Enron. I suspect in a case like this, not many people do.

An audio commentary from the New York Times seemed fair enough: Ken Lay was a self made millionaire whose business outstripped his understanding of the enterprise. He then trusted his enterprise to other people, which may have been his undoing (and I note you did not defend Mr. Skilling).

There are several forces that contribute to a situation that Lay found himself in. The first is the large number of scandals going on. The public sees rich men made even richer by schemes, cheats, and unscrupulous dealings. The public, most of whom struggle financially, becomes outraged.

The second is the Roman Colosseum mob mentality. Heads must roll. Blood must be shed. Sacrifice and atonement. I understand the public anger and the public response. However, that makes neither right.

I agree that there is a piling on from the media and the public. Good people like yourself are here to remind us that human beings are inherently flawed, and the piling on is unnecessary.

I am not sure of the profound moral message in all this. Although I believe atherosclerosis is genetic, and that Lay suffered more from that than a 'broken heart', the stress of these events over the past few years sure didn't improve his arteries. It appears we must always remember the great reckoning we face some day. We can cheat the public, and we can cheat the government, but we can't cheat the great equalizer - mortality.

Posted by: GRG51 Author Profile Page at July 6, 2006 11:14 AM

Tom, thanks for being a voice of reason and sanity in an ever-increasingly hysterical world. Best wishes and condolences to Linda, Liz, Sharon & Joe and the rest of the Lay family.

Posted by: Byron Hood Author Profile Page at July 6, 2006 11:16 AM

Tom, thanks for being a voice of reason and sanity in an ever-increasing hysterical world. Without you, nobody would know how truly irrational and insane I truly am when I go off the deep end like this.

But, hey, it's fun. Now pass the cream cheese.

Posted by: Laurence Simon Author Profile Page at July 6, 2006 2:28 PM

I, like most of you, find it difficult to read the comments on the blogs by people that have no basis for their comments. I feel a need to weigh in since I actually have a fact based comment. I was an Enron employee, although I never personally met Mr. Lay while employed. I did have the misfortune of sharing a hallway with Mr. Lay while he and I were on the same end of the Enron Task Force. Mr. Lay was always cognizant of my situation, and even though I am friends with and a former colleague of his son, he was very careful not to walk near me outside the courthouse or on lunch breaks for fear that his press coverage and notoriety might somehow negatively affect my situation. All I personally needed to know about Mr. Lay I learned in one simple conversation, only the second of which we shared during the entire month plus of passing in the hallway; I was in the hall immediately after the Lay verdict was announced awaiting my on fate; Mr. Lay's family exited the courtroom very distraught from the verdict. While passing by, Mr. Lay made a point of coming over to me and very simply said: this doesn't change anything, you and your family are still in our prayers; everything is going to be allright. This from a man that was just convicted and probably understood that he would spend the rest of his life in prison. Hopefully, this gives the heartless individuals out there something to noodle on. To the Lay family, our prayers are with you.

Posted by: mwk Author Profile Page at July 6, 2006 11:13 PM

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