The message of the Enron era is still resonating for top executives: If you defraud your company, you could pay a big price.
A jury in Chicago amplified that warning Friday, convicting newspaper publisher Conrad Black of looting his media empire and carting away evidence. Unless he is successful on appeal, the Canadian-born tycoon with a flair for bombast faces a prison term of up to 35 years.
The trial is the latest in a series of high-profile checks on corner-office power. But at a time when stock-market indexes are hitting record highs, it's also a reminder that federal prosecutors aren't finished with their pursuit of white-collar crime.
"It's still in full swing," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "My guess is that there are a lot of ongoing investigations."
What happens next, though, will depend on how seriously today's business leaders heed these courtroom dramas. A series of CEO prison terms is clearly acting as a strong deterrent to corporate misdeeds, experts say. But as the recent stock-index records attest, the business world is awash in money – with attendant temptations. Large sums are flowing in relatively new and unregulated channels.
"Certainly one wants to look very carefully at the hedge fund and private equity world, to see if there are any brewing scandals," says David Ruder, who served as chairman of the US Securities and Exchange Commission in the late 1980s.
Chief executives of publicly traded companies, for their part, make huge decisions and rake in huge paychecks. Yet in the end, they are servants as well as leaders.
"The corporation doesn't belong to the officer," says Mr. Ruder, who is affiliated with the Northwestern University School of Law in Chicago. "But sometimes, for the corporate managers, they don't quite see it that way."
A spate of high-profile trials since 2004 has helped send the message. Jeffrey Skilling of Enron, Bernard Ebbers of WorldCom, John Rigas of Adelphia Communications, and Dennis Kozlowski of Tyco International are among the former CEOs convicted in criminal trials.
Before the collapse of energy giant Enron Corp. in 2001, it was rare for a chief executive officer to pay for misdeeds with a long prison term.
Now, in addition to a tougher enforcement climate for old rules, they live under tough new rulers as well – vouching personally for corporate financial statements.
"People are being extremely careful today," says Paul Danos, dean of the Tuck School of Business at Dartmouth College in Hanover, N.H. Most executives, he says, will rightly reckon that they have a lot more to lose than to gain from bad behavior.
Mr. Black's trial is the latest reminder of how times have changed. As a businessman, Black built Hollinger International into a prominent publishing empire, with an array of community newspapers as well as the Chicago Sun-Times, Jerusalem Post, and London's Daily Telegraph. Black renounced his Canadian citizenship to become a member of Britain's House of Lords.
But the media holdings weren't standout performers. In the late 1990s, the firm began to sell many of its small papers. Black and other executives arranged for the deals to include "noncompete" agreements.
In return for a fee, Hollinger would promise not to launch new competition against the papers it was selling.
The unusual twist: Much of the "noncompete" money went to Black personally, not to Hollinger.
The move first spawned shareholder ire, then criminal and civil lawsuits.
Black was ousted as CEO and chairman. Hollinger has changed its name to Sun-Times Media Group.
In the criminal case, US attorneys in Chicago alleged that Black and his colleagues had illegally pocketed some $60 million in these fees. The trial involved 13 charges, from fraud and racketeering to obstruction of justice. Some focused on Black's lavish lifestyle – including the allegation that he had bilked the company by riding a Hollinger-owned jet to a vacation in Bora Bora.
The prosecution won only a partial victory, with the jury convicting on just three of the mail fraud charges, plus obstructing justice. The toughest penalty Black faces is for obstruction when he carted boxes of documents from his office, an act caught on video.
Even if he fails on appeal, Black's prison term may end up being much shorter than the 15 or more years that prosecutors hope for – and shorter than the sentences won in some other white-collar cases. Former WorldCom CEO, Mr. Ebbers, is serving a 25-year term after an accounting that ruined the phone company.
But legal analysts say Black's loss still carries a warning. "Corporate CEOs are very intelligent, very rational, and if they see a guy like Conrad Black getting a prison sentence ... that has a very important prophylactic effect," says Andrew Stoltmann, a Chicago securities lawyer.