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Jeff Skilling

Tom Kirkendall systematically lays out the case for Skilling's innocence.

There have been a lot of complaints about CEO salaries in the last few years (and newly elected Senator Jim Webb, judging by his incoherent Wall Street Journal op-ed, seems to plan to create an entire economic agenda around this issue), but one factor rarely mentioned is how 21st-century American CEOs are essentially being compensated ex ante for the ex post risk of life-ruining criminal and civil prosecution for business failure. Even aside from the procedural irregularities of the prosecution's tactics, every action that resulted in Skilling's conviction was vetted by accountants and attorneys, and this was deemed ultimately irrelevant.

Note that I am not saying that there was no fraud at Enron; CFO Andrew Fastow and others who worked for him were self-dealing with the company, and profited by millions as a result. The loss of market confidence in Enron's financial structure when Fastow's scheme came to light, combined with post-dot-com-crashes in the valuation of overoptimistic multi-billion-dollar Enron Broadband investments, was ultimately fatal to the company. But Fastow acknowledged that he had successfully hidden the self-dealing from Skilling and Lay.

Were Lay and Skilling bad, in the sense of poor-performing, executives? Almost certainly; like many others in the late 1990s, Enron prematurely made too-huge bets in broadband technology that ultimately turned disastrous, and shareholders who bought in at the markets' bubbly overvaluations of that future revenue stream took especially bad hits. But that doesn't make Enron much different than Lucent or Charter Communications or eToys or Priceline or even a biotech company like Celera that suffered a 93% stock drop when the bubble burst. Better executives would have preferred straightforward financial statements rather than condoning CFOs and accountants to push the limits of late 1990s GAAP; good executives try to increase shareholder value by running the business rather than by browbeating financial press reporting that recognize when the financial statements are being misread by the market. But were Lay and Skilling bad, in the sense of malicious, executives? The Task Force hasn't proven that. At least some of Skilling's conviction will be reversed by the Fifth Circuit, but I would be skeptical that the standard of review will be enough to reverse the conviction for his September 17, 2001, stock sale.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.