Greed, part one (2/14/2006)

The trial of former Enron chief executives Kenneth Lay and Jeffery Skilling began last month in Houston. Lay is charged with seven counts of conspiracy and fraud and Skilling faces 31 charges. The Enron case is particularly notable because it is the biggest test yet of the so-called “idiot defense.” Lay and Skilling claim that they knew nothing about the crimes committed at Enron, and that it was all the fault of underlings-- particularly the already convicted Andrew Fastow, Enron’s ex-financial officer. Ironically, while former Enron employees face a grim financial future, Lay and Skilling are spending over $20 million on a defense team that includes pollsters, political scientists, sociologists and jury consultants in addition to their lawyers.

Lay says that no chief executive “knows everything that is going on in his company” so no one should expect him to be responsible. Lay whines that he did not know what Fastow was doing. This defense, also called the “dummy” or “ostrich” approach, didn’t work for Adelphia CEO John Rigas and WorldCom’s CEO Bernard Ebbers, who were found guilty in their corruption trials. However, it did work for HealthSouth’s CEO Richard Scrushy, who was found not guilty. How can an experienced executive, with a huge salary and benefits, notknow about ongoing plundering over many years?

Greed seems to be an answer. David Callahan, in his book “The Cheating Culture” demonstrates that cheating is everywhere because making money is in, and money has become influence. He says, : “…we’re starting to feel like a corrupt banana republic—one of those places where a rapacious oligarchy sets the moral tone by ripping off the entire country and those below follow suit with corruption of every conceivable kind.”

Think about David Brooks, CEO of the bulletproof vest manufacturer, DHB Industries. DHB makes hundreds of millions of dollars through government contracts. Brooks made $70 million in 2004 and an additional $186 million selling company stock. He gave a birthday party for his daughter that cost an estimated $10 million. At the same time he was accumulating this wealth, 18,000 of his bulletproof vests were recalled. This was a second recall. Some of the body armor had failed a federal safety test. So while Brooks danced at his daughter’s party, our soldiers in Iraq were endangered in poorly constructed body armor.

According to United for a Fair Economy and Institute for Policy Studies, the average CEO pay is $11.8 million; the average worker pay is $27,460. But, there appears to be no link between CEO performance and pay. For example, Eli Lilly’s profit fell 29% while its CEO got a 41% raise up to $12.5 million. Sanmina-SCI, an electronics company, lost money for the last 3 years, but its CEO’s salary jumped from $1.2 million to $15 million. United Airlines just emerged from bankruptcy, with their CEOs getting millions, while many workers either lost their jobs or got reduced pay and pensions. Furthermore, CEOs of firms with the most under-funded pensions, on average, received 72% more than the average large company CEO.

Enron’s CEOs got mega millions while their company coffers were raided and customers were cheated. On tape their energy traders joked about ripping off poor grandma with excessive California electricity rates. Lay and Skilling claim they didn’t know what was going on. How can someone be paid so much money, yet not be held responsible? In corporate scandals, greed, dishonesty and CEO corruption abound. And then there are the ongoing political scandals, but that’s a topic for another commentary on greed and American values.

- Judith Kohler

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