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Enron's impact on the corner office

Kenneth Lay and Jeffrey Skilling were found guilty of most charges Thursday.

By Ron SchererStaff writers of The Christian Science Monitor, Kris AxtmanStaff writers of The Christian Science Monitor / May 26, 2006



BRYN MAWR, PA., AND HOUSTON

The quiet, classic bank offices at Bryn Mawr Trust are a far cry from the hustle - and self-dealing - of Enron Corp., the former energy powerhouse of Houston.

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But the tale of Kenneth Lay and Jeffrey Skilling, the Enron executives who were found guilty of most charges by a jury Thursday, has prompted change even at the gracious offices of the 117-year-old bank.

"This is the highest profile white-collar trial in the past 20 to 30 years and it has literally been watched by the world," says Thomas Ajamie, a securities-fraud lawyer in Houston. "The broader message to people in corporate America is: 'Don't lie to your investors or you'll go to jail.' "

Just ask the Bryn Mawr Trust's chairman and CEO, Ted Peters, who has been a banker for most of his career. Today, he can reel off the provisions of a reform law Congress passed in the wake of the corporate scandals of the late 1990s. The one that really gets his attention is his personal liability.

"I could get 20 years in jail and a $5 million fine if [I] do something wrong purposely," he says during an interview at the white, limestone bank.

This is just one of the ways life for a CEO has changed since 2001, when the Enron collapse stunned the business world. The jury's quick - and overwhelming - verdict Thursday is likely to hammer home that sense of diligence to corporate America.

The jury found Mr. Lay, Enron's founder, guilty on all six counts of conspiracy and fraud against him. It found Mr. Skilling, the former CEO, guilty on 19 of the 28 counts he faced. Lay was also found guilty of four counts of bank fraud in a case heard the past few days by US District Judge Sim Lake.

Lay faces a maximum of about 165 years in prison and Skilling about 85 years, but they will both realistically get between 10 and 25 years each, says Gerald Treece, assistant dean of the South Texas College of Law in Houston.

Others expect the punishment will be greater. "I believe it will be the stiffest sentence for corporate crime in our history," says Jacob Zamansky, a securities fraud lawyer in New York who attended much of the Enron trial.

Today, CEOs can no longer use the excuse that they can't be responsible for other people robbing the company. They can't reward friends with a seat on the board of directors - today, the board must consist of knowledgeable people who will challenge company procedures when it's necessary. And, CEOs, if they choose to ignore the changes, could well be out of their jobs.

"This is part of a unified effort by state and federal authorities to wage war on white-collar crime," says Christopher Bebel, a former federal prosecutor and economic-crimes expert in Houston.

"This has undoubtedly had a powerful effect on the corporate mind-set. CEOs from Main Street to Wall Street are going to be more hesitant to deceive investors while lining their own pockets," says Mr. Bebel.

Since Enron, forced turnover at the top has doubled.

"The CEO used to be the pinnacle of a career, the reward for a long, hard slog," says Paul Kocourek, a senior vice president at Booz Allen Hamilton in San Francisco. "Now, it boils down to your performance - if it's not there you are probably not either."

One reason boards are starting to exert themselves more are changes in how board members are chosen. In the case of the Bryn Mawr bank, Mr. Peters says his predecessor, who had held the job for 20 years, would pick each board candidate. "He would announce, 'Here's Joe and he's from Villanova' and everyone would applaud, he would sit down and that would be that," says Peters.

"Now, it's an independent group that brings up names, and there is a whole involved process to get people with the right skill sets. A new director then meets me, and I spend a few hours with him or her talking about my vision for the company."

In the post-Enron era, a CEO must go beyond being a good manager, says Michael Kendall, a partner in the law firm of McDermott Will & Emery LLP based in its Boston office. "The concept is crisis management instead of risk spotting," he says. "You have to manage the crisis before it consumes you."

Peters's way of managing a crisis is notifying his board of directors as soon as he identifies a problem. "You tell the board right away," he says. "And if there are documents involved, you don't shred them, you don't delete e-mails, and you don't touch a thing."

The problems at Enron have highlighted to many companies the importance of implementing a code of ethics. Enron actually had a lengthy code of ethics but it was largely ignored.

One thing Peters has learned from the corporate scandals is that ethics comes from the top down. "A CEO has to make clear to people who work for him or her that ethics are non- negotiable," he says.

For example, the bank discovered an employee who used bank stationary to dispute personal claims with the Internal Revenue Service. He was fired, says Peters. "That might seem extreme, but it was against our code of conduct."

However, many executives today rail against what they see as the more onerous parts of the Sarbanes-Oxley Act. A group called the Free Enterprise Fund is mounting a constitutional legal challenge to part of the act. It particularly wants to ease the financial burden on small- and medium-size companies.

"Sarbanes-Oxley was designed to prevent" the kind of fraud that brought down Enron and its top managers, says Bebel, the former federal prosecutor.

Peters can certainly relate to the added cost of running a company in the post-Enron era. Today, it costs the company about $300,000 per year to manage its new responsibilities. "Hopefully, we get some good benefits from it," says Peters.

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