It’s About Time Somebody Said This (about Enron, SarBox, and Business Leaders)

From an OpinionJournal.com editorial yesterday, on the fallout from Enron:

In all, some 30 people have copped pleas in the Enron debacle, and about half of them will testify against Messrs. Skilling and Lay. This suggests to us that the justice system has been doing its job the right way here. It has taken the government time to build its case against the men at the top, but they are now standing trial. Despite allegations of preferential treatment or leniency, individuals have been indicted and tried, or are being tried.

This is how things are supposed to work–in contrast to the Justice Department’s shoot first, ask later approach to the indictment of Enron’s auditor, Andersen. In that case, Andersen was put out of business by an indictment that went after the entire firm, and so avoided the messy business of identifying the accountants actually responsible for any wrongdoing. In addition to the 30-odd guilty pleas that Justice has already secured, Merrill Lynch, Citibank and JP Morgan Chase have each to some extent faced justice for their role in Enron’s rise and fall. Andersen was wiped out.

Enron was also the first spark that lit a powder keg of corporate reform. It built momentum for Sarbanes-Oxley to rush through Congress, burdening companies for the foreseeable future with untold compliance costs and litigation risks. Enron helped launch the anti-corporate crusade of Eliot Spitzer, which in turn has made him a candidate for Governor of New York. Enron’s culprits ended up putting further burdens on millions of honest businessfolk, beyond the immediate price paid by innocent employees and shareholders.

They thus have a lot to answer for, and in fact they are answering for it under the laws in place before this latest bonfire of regulation. Messrs. Skilling and Lay are on trial for fraud and conspiracy, some of the oldest and most-sweeping crimes on the books. Sometime down the road, there will be another “Enron.” Sarbanes-Oxley did not repeal the laws of human nature, any more than the crimes of a few should be used to malign the ethics of everyone in business.

The editorial should have put the word “reform” in quotes. Sarbanes-Oxley isn’t “reform” — It’s busywork for CPAs, and an open invitation for new forms of class-action litigation.

Never forget that the Andersen conviction was overturned, unanimously, by The Supreme Court. Some consolation.

And of course the editorial’s larger point is true. The large majority of businesspeople are ethical and try to do the right thing. The legacy of Enron and the continuing burdens of SarBox are based on the assumption that they aren’t. That legacy is not the fault of Ken Lay or Jeff Skilling, but of the cynical opportunists who capitalized on one corporate fraud to potentially jeopardize all public companies and their executives.