June 02, 2006
Posted by Don Langevoort

Consider the following, which I certainly don't know to be true but at least poses an interesting moral question.  Ken Lay comes back to Enron and discovers what he may only have feared before -- that the economics of the company are weaker than reported.  At the same time, he genuinely (if overoptimistically) believes that the company's business model is strong, and that there is a reasonable chance that the problems can be cured.  If he tells the complete truth, the company will likely suffer a disabling cash flow crisis -- and thousands of employees, retirees (and yes, senior managers) will be harmed.  If he dissembles, there is a reasonable chance of saving the company and avoiding the harm to those stakeholders.  What is the right course of action?

This is, of course, just a version of a famous problem in ethics, guaranteed to provoke a spirited discussion (and disagreement) among nearly any group.  So far as the law is concerned, only the true Holmesean would say that there is moral freedom to behave illegally -- I am not suggesting that.  But suppose one's lawyers and accountants were saying that the contemplated disclosures were colorably defensible as a matter of law?

I don't think that this is an easy ethical question.  I can't say how close to this situation Lay was -- perhaps his apparent arrogance at trial undercuts the idea.  But Enron aside, I will venture a guess that many of what we've identified as moral failings in the various corporate scandals (especially in the form of nonfeasance) are variations on this theme.  Blow the whistle and a large number of stakeholders will suffer immediately and certainly.  Hold back and there is a chance of  that the net harm will be less, or maybe even (with luck) no harm at all.  In hindsight, of course, we know that the harm came anyway, even with the dissembling, so that acquiescence in concealment only made things worse.  But foresight was not available at the time.  Again, assume that the perception that the strategy of concealment might work was genuine.

My "mixed feelings" about the verdict (apologies for the earlier post under the inadvertent pseudonym "seclawprof") reflect my unease -- as Christine, Lisa and a number of others have also suggested -- that the real questions here were not clearly put before the jury, and that the extraordinary power of hindsight was a too powerful weapon for the prosecution.

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