One of the problems with criminalizing agency costs is highlighted in a couple of recent stories – it’s a diversion of resources from more important tasks of finding out what happened.
Rebecca Smith wrote Friday in the WSJ that the Enron trial failed to answer a lot of questions about Enron’s business. She said, “more than four years after the Enron scandal began, it is still impossible to say what was real at Enron and what was smoke and mirrors.” Alex Berenson raises questions in today’s NYT about the value of Enron’s innovations in energy markets.
As Smith points out, quoting former US attorney Anton Valukas, “"What trials aren't about is the resolution of great issues." That's an understatement. At best, they're about proving specific crimes beyond a reasonable doubt. In the Enron trial they were about manipulating the charges against people involved in the Enron dealings so they wouldn't be witnesses. Not exactly designed to get at the whole truth.
After all the tens of millions spent on the criminal prosecutions, we aren’t going to get the answers we need to make public policy.
Of course we did teach Lay and Skilling a lesson about good corporate governance. One they presumably wouldn't have learned after losing their wealth, jobs and reputations.
And we did deter future such crimes. Because surely no one will ever try to push the envelope on accounting, or engage in financial chicanery, again. Will they?
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