Capitalism, Enron-Style

by Robert Herold


Until now I thought that the military had a corner on euphemisms. My favorite is "collateral damage." Translated: We bombed a hospital. Well, that was yesterday. Today, Enron is the new euphemism champ. Their executives and those who supported what Enron was up to (if not how things turned out) call it a "business failure"? Or, better yet, "only a business failure."


The Enron collapse was to business failure what the legendary bank robber, Willy Sutton, was to money management. About the time you think things can't get worse, they do. Turns out, not only did these robber barons make off with millions in stock sales only a few days before the company went into bankruptcy, they actually had the temerity to vote themselves bonuses totaling approximately $55 million.


And the official apology? Enron would need their expertise and leadership to work its way out of bankruptcy. Now isn't that special.


Let me see if I have this right: The very same guys who created the disaster are being paid $55 million to stick around and fix things? Oh, well, let's not quibble. Inside of three months after the bonus decision, all but a handful were gone anyway.


The best explanation for what Enron was up to comes to us from journalist Andrew Sullivan. He quotes a professor, who explained the goings-on to his class this way:





Capitalism -- You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.





Enron Capitalism -- You have two cows. You sell three of them to your publicly traded company, using a letter of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by a majority shareholder who sells the right to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. Repeat as necessary until you have $62 billion in assets. Then declare bankruptcy.





Jeff Skilling's exercise in studied amorality before the House Energy and Commerce Committee's investigative arm was reminiscent of Adolph Eichmann's infamous, if banal, defense at Nuremberg: I knew nothing, I saw nothing. Unlike Eichmann, Skilling couldn't plead that he had only been following orders. After all, he was the one giving orders. But now we are to believe this hard-charging, hands-on CEO had no clue that profits were being fabricated. And that's where we get yet another euphemism: "aggressive auditing."


Billions were being moved, millions made off midnight sales, warnings ignored -- but there sits this arrogant guy, telling all who will listen that so far as he knew, everything at Enron was ship-shape. Oh yes, now he has come around to explaining away the crash by employing yet another beaut of a euphemism: Enron, don't you know, was brought down only because of a "lack of liquidity."


Whistleblower Sherron Watkins accuses Skilling and other senior executives of conspiracy, but clings to the belief they "duped" Ken Lay. Duped?


I've always thought that the Navy had it about right on this one. It doesn't matter the cause: if the ship sinks, captains go down. An accident at sea, as the old line goes, can ruin your whole day. And it must and should, if the words honor and responsibility are to mean anything.


Watkins' kid gloves treatment of Lay recalls the plight of a naval officer with whom I once worked. An Academy graduate, regarded as an up-and-comer, he had been awarded early command of a mine sweeper. An hour or so before he took over the ship, as is the custom, he was given a tour by the captain he was about to relieve. In a passageway below deck, the officers came across several large boxes that were partially blocking their way. The outgoing captain explained that public works would show up the next morning to take away the boxes. A few minutes later the ship changed hands. The Lt. Commander signed for the ship, the outgoing skipper signed off on the log. That night a fire broke out. Three sailors died because they couldn't make their way to deck past the boxes.


Guess whose career effectively ended? Not the skipper who had signed off the ship. No indeed, the responsibility went to the new ship's captain. Going down with the ship can take many forms.


No stock sales. No bonuses. No Fifth Amendment pleading. Just responsibility firmly fixed, and honor maintained. One thing for certain, if the public's faith in the market and corporate America is to be restored, that principle must be made to apply to the Enron disaster.


Lay, Skilling and Co. must be made to experience their own version of an accident at sea. How about this for a solution: The government lays (no pun intended) claim to all the money made by the senior executives through those stock sales. We add in the bonuses. We then divide all this money up amongst the workers -- you know, the people who really were duped. As penance, the executives don't get their share. Instead they go down with the ship. After all, they sank it themselves.