ago I passed along (and the Wall Street Journal recently
picked up) the aphorism of a Viennese intellectual and colleague
in the early days of National Review magazine. I forget what precipitated
the crack, but Willi Schlamm said disconsolately after putting down
the day's paper, "The trouble with Communism is Communism.
The trouble with capitalism is capitalists." To believe that
capitalists will behave honorably just because they are engaged
in capitalism is akin to believing that no priest will engage in
pedophilia simply because he is a priest. Our godfather Adam Smith
somewhere remarked that the view of more than two businessmen talking
together in a corner justifies the suspicion that they are discussing
devices in restraint of trade.
In the early
days of the Enron story one could say that there was no evidence
there of criminal activity, and indeed it is fair to reiterate that
when heavy stockholders sell shares in their company, they are doing
so openly, so long as they registered their sales with the Securities
and Exchange Commission, which in the case of the Enron Seven, was
done. But we learn that the incidence of such insider sales was
abnormal. The Chicago Tribune cites the sale of shares by
insiders in the case of Dynegy, Inc., which is a Houston-based energy
company that was the principal rival of Enron. They had nine instances
of company shares sold. The Enron people had at least 64. It is
fair to say that the Enron people were perhaps top-heavier in stock
than the Dynegy people and therefore under greater pressure to diversify.
But now we know that Chairman Kenneth Lay was predicting in company
mailings an upturn in the stock, while selling some of his own.
What we do
not know is that there was guile in the situation, though day by
day the perspective appears to incriminate. We have a greater destruction
of company records than is apparently justified. An accountant for
Arthur Andersen has refused to answer questions from a congressional
committee unless he is given immunity from collateral prosecution.
It is hard for laymen to understand just what is being concealed
that required so comprehensive an act of shredding. If, after April
1912, the firm that built the Titanic had ordered destroyed the
bales of designs that guided the ship's construction, one would
nod one's head in understanding. But Enron's financial records are
easily documented by reconstruction, so that one understandably
wonders whether the idea was to destroy one or two incriminating
internal memos, on the order of those of the tobacco executives
who decades ago privately acknowledged the danger of smoking, but
not knowing exactly where they were filed, ordered whole acres of
material tossed away.
management did that was illegal, there is no doubt that their behavior
was inconsiderate, though hardly justifying such a tragedy as the
suicide of former Enron vice-chairman J. Clifford Baxter. What will
happen when the lawsuits against them come to term? The Wall
Street Journal reports that Enron carried about $300 million
in directors-and-officers insurance. But such insurance policies
aren't absolute guarantees of protection. Robert Hartwig, who is
chief economist at the Insurance Information Institute, says that
"in general, material misrepresentation is grounds for nonpayment
or at least dispute of a claim for payment." Economist Lawrence
Kudlow reports that it is not yet known what kind of misconduct
provisions the Enron policies had.
But leave aside
the question of monies recapturable by lawsuit. Eighteen top officers
and directors of Enron executed 64-plus sales of the company's stock
in 2001. Seven were responsible for 91 percent of all sales by people
defined as insiders.
here is that these seven men simply return the money they made to
the company if possible, directing its routing as a contribution
to the 401(k) retirement funds that evaporated in the meltdown.
We are talking about $130 million. The largest sums went to former
CEO Jeffrey Skilling and to former chairman Kenneth Lay.
It would be
especially heartening if the offerings were made before any consolidated
investigation made likely successful criminal prosecution. A gesture
of the kind could detoxify much of what happened. A $90 billion
company can go down for reasons that don't incriminate management.
But when simultaneously, management prospers, a transcendent moral
question arises, and this has happened in the case of capitalism