Will Lay and Skilling walk?

This Fortune article, tipped by Steve Bainbridge, suggests Lay and Skilling might walk:

At their criminal trial Jeffrey Skilling and Ken Lay will each advance defenses closely analogous to the naked emperor's: They were tragically misled, their attorneys will argue, by a small group of deceitful subordinates (chief financial officer Andrew Fastow and his minions); their actions were blessed at every turn by seemingly illustrious advisors (sycophantic accountants at Arthur Andersen, blindered lawyers at Vinson & Elkins and a passive board of directors); and perhaps, too, they got a little carried away by their own presumed innovative brilliance during the irrational exuberance of the late 1990s bubble economy.

This is not surprising. As I pointed out several months ago:

The government rushed Lay into the indictment just in time to try to avoid some attacks at the Democratic convention that happened shortly after the indictment, as Lay has pointed out. Then they put him on ice until at least early 2006. They put him through a perp walk, handcuffs and all, all for some alleged puffery as Enron was going down plus a peripheral violation of an obscure banking regulation.

The basic problem here, as I’ve often said, e.g. here, is with the strategy of criminalizing agency costs. Lay and Skilling were not the best managers money could buy. But to apportion guilt in a way that maximizes the law's deterrence function requires a scalpel, not the bludgeon of the criminal law.

And the moral force of the criminal law should be reserved for the cases that deserve it. Even if Lay and Skilling are convicted, the question won’t turn on, for example, whether they were at the scene of the crime. Of course they were. But the jury has to make a very difficult determination as to the precise positions of their eyes and ears. Years in jail should not hang on such details.

Comments

[Dave Schuler]

Lay and Skilling were not the best managers money could buy.

Is this a poorly-considered turn of phrase or do you really believe that money buys good managers? I would think that Enron provided a prima facie case that it doesn't.

[gundryggia]

Money can certainly buy good managers, unless we suppose (1) there are no "good managers" or (2) good managers are ascetics who care not about material things. I suspect (1) is more likely than (2).

(Of course executive performance is hard to evaluate, executive compensation is related to national and industry culture, etc.)