June 01, 2006
The Enron Narrative
Posted by Victor Fleischer

Nothing beats the threat of jail time for focusing a client's attention.  Looking ahead, however, the effectiveness of the Enron conviction as a deterrence tool depends on the story that is remembered.

The evil executive narrative.  To secure a conviction, the Enron prosecutors made a sensible choice:  by and large they told a story that made each executive out to be greedy and evil, a liar and a thief.  A villain.  This story made it easier for the jury to convict.  Even if we don't personally know an evil executive, it's a familiar enough narrative from popular culture.  It doesn't take a lot of work for the jury to fit the facts into the story.  Pop culture has already primed the pump.

The problem is that the effectiveness of the narrative in securing a conviction bears an inverse relationship to the effectiveness of the narrative in deterring future corporate fraud.  Lay and Skilling are now villains.  Will CEOs considering overly aggressive accounting maneuvers be deterred?  Not unless they seem themselves as evil. 

Men-of-Action.  Which, of course, they don't.  They can't imagine themselves in Lay and Skilling's place.  They imagine themselves in a different narrative entirely.  They see themselves as men-of-action.  As ordinary men placed in extraordinary circumstances, doing what needs to be done to get the results their board members, shareholders, and employees demand.  If Jack Bauer were a CEO, wouldn't he bend a few rules too?  (Recall Lay's testimony that "rules are important, but you should not be a slave to the rules, either.")  At worst, CEOs see themselves as flawed heroes. 

Cheater, cheater, pumpkin-eater.  A more effective narrative in terms of deterrence would be to remember Lay and Skilling as cheaters.  There is nothing worse than being called a cheater,Whiteshirtsmini as Barry Bonds knows every time he enters a visiting ballpark.  The relentless public shaming of Barry Bonds serves as a more effective deterrent to younger players considering steroid use than any league rule or potential perjury conviction.  So too with Lay and Skilling:  other executives cannot imagine themselves as evil.  But when they manipulate earnings, like Bonds applying the Cream, they know deep down that they are cheating to get ahead.  And they might think twice about it.  Lay and Skilling should be remembered as grifters.  I hope that's the narrative that sticks.   

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