The convictions of Ken Lay and Jeff Skilling are less than a week old, and yet conclusions are already being drawn about whether "corporate wrongdoing" is a thing of the past. As someone with more than a passing interest in the Enron story -- I was, to quote Ken Lay's bizarre testimony, one of the "short-sellers that were organized and working together and conspiring together" against Enron -- I feel a need to examine what lessons those of us who slog it out daily in the corporate trenches might gain from Enron's spectacular collapse. I propose to offer the top 10 lessons from Enron that executives, investors and lawyers will soon forget:
1. The Enron scandal shows a need for a standards-based accounting system, rather than a rules-based one.
2. Mark-to-Market accounting was not the problem at Enron, Mark-to-Model was.
3. Off-balance-sheet deals and entities are "off" the balance sheet for a reason.
4. Wall Street analysts don't "do" complex.
5. The rating agency system breaks down when most needed. Rely on it at your own peril.
6. Beware of, and question, unexpected executive resignations.
7. Whistleblowers aren't whistleblowers if they blow their whistles inside the company walls.
8. Special investigations by corporate boards are almost always a waste of time/money, and often prove highly misleading.
9. Character cannot be compartmentalized.
And, finally, 10: Friends do not let (possibly guilty) friends take the stand in criminal trials.
Let's face it, the Enron trials of Lay and Skilling had it all; greed, arrogance, an incompetent defense strategy (oh, how I wish short sellers had the power that Enron's defense team claimed we have!) and, of course, larger-than-life corporate villains. One would assume the high profile nature of the trial itself might underscore this observer's list of lessons learned from Enron's spectacular collapse. But thankfully, I'm pretty confident that they will be forgotten soon.
~ James Chanos, "Short-Lived Lessons From an Enron Short," The Wall Street Journal, May 30, 2006