June 01, 2006
The Enron Trial: How Important Is It?
Posted by Matt Bodie

Many thanks to the Conglomerate folks for the invitation to such a great forum.

I suppose I should begin by revisiting my earlier post: The Enron Trial: Reasons Not to Watch.  There I argued that the trial of Ken Lay and Jeff Skilling would not be the must-see corporate law event that it was being made out to be.  Was I wrong?  Although the trial itself was fascinating, with a somewhat surprising conclusion, it was fascinating as theater -- not as a corporate law watershed.  Why?  Well, here are the reasons I gave in my initial post.

  • The real bad guy was not on trial.  Although both Lay and Skilling were convicted of multiple crimes, the true villain in this tale is Andy Fastow.  He masterminded the scheme which made himself and his closest associates wealthy at the company's expense.  When Fastow gets a lighter sentence than Lay and Skilling, Larry Ribstein is right in saying that it's a penalty for going to trial.
  • The outcome may not have rested on ultimate guilt or innocence.  I don't see a lot of folks saying that Lay and Skilling were actually innocent.  But I do see them saying that Lay hung himself with his defensive, cantankerous testimony.  (See, e.g., Peter Lattman, seconded by the good Professor Bainbridge.)  In fact, all I see is praise for the prosecution in keeping it simple, maintaining a black-and-white narrative, and avoiding a lot of the accounting complexity.  In addition, the trial was not about the overall downfall of the company, but instead about the efforts by Lay and Skilling to hide the results of Fastow's malfeasance.  As Bill Bratton pointed out earlier, this trial intersected the real scandal only incidentally.
  • Enron overload.  Yes, I'm contributing to it.  But there has been so much written about Enron, it was unlikely that the trial would shed much new light.  Did it?  Well, we now have two convicted executives, and a real sense that justice has been served.  But did we learn anything new about their conduct?  The only real grabber from the trial, from my perspective, was that Lay's son was an Enron short-seller.  As the good Professor noted, the Powers Report remains the "go to" document for a discussion of the scandal.  (I would also add Bill Bratton's pathbreaking piece, Enron and the Dark Side of Shareholder Value.)

Does that mean that Enron or this trial are not worth talking about?  Of course not.  My point is that we should not mistake the results of this trial as the final word, or even the most important word, in the whole Enron mess.

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