Lay's legacy

July 09, 2004

MORE THAN two years after the massive implosion of Enron, the now-bankrupt energy giant, a complex criminal investigation has finally worked its way through layers of former executives to the inevitable, a federal indictment unsealed yesterday against the company's founder and former chairman, Kenneth L. Lay. For former Enron employees and investors and many others collaterally damaged by the sudden collapse of what was once the seventh-largest U.S. company, the long-awaited sight of Mr. Lay surrendering in handcuffs to authorities in Houston had to be richly satisfying. To boot, the Securities and Exchange Commission also came in yesterday with civil charges against Mr. Lay.

As to the fraud charges against him, Mr. Lay's guilt or innocence will be determined in court, after what doubtless will be exceedingly lengthy and costly litigation involving highly technical matters. But if, as promised, Mr. Lay's defense is that he simply didn't know anything about the gross financial misdeeds transpiring in the bowels of Enron, that seems patently preposterous at the outset.

Here is a trained economist who took a minor-league gas pipeline company, navigated it through the uncharted world of energy deregulation and, in the process, transformed it into a global trading colossus; a savvy political player whose mountain of donations to the Bush campaign earned him enormous friendship and authority in the current White House; and a corporate leader who, despite internal warnings that Enron's shell game was unraveling, kept on urging his employees and others to buy its stock -- all the while continuing to sell his. And Mr. Lay didn't know? Given the pervasiveness of the alleged corruption at Enron, that's real hard to swallow.

In the halcyon days of the 1990s stock market boom -- which seems so distant now, doesn't it? -- Mr. Lay was not shy about enjoying an opulent lifestyle. He had the homes, the jets, the contacts and, at one time, $400 million.

With the company's rapid fall in late 2001 -- its stock plummeted from more than $80 a share to next to nothing in less than a year -- he became a powerful cultural symbol of ill-gotten gains. But whatever happens now, Mr. Lay's legacy will have less to do with greed than with the necessity for greater corporate accountability.

Of course, Enron unfortunately was just the first mammoth corporate scandal in a shock wave of frauds and bankruptcies -- WorldCom, Global Crossing, Adelphia Communications and Tyco International -- still rippling through boardrooms, courtrooms, Wall Street and the American economy. In their wake, a new era, however unsettled and imperfect, is emerging, one in which CEOs and corporate board members are now directly held -- primarily via the Sarbanes-Oxley Act -- to standards of accountability that should have been more universally met all along and that are still resisted.

Under the new rules, U.S. chief executives must regularly pledge in writing to regulators that they understand and take responsibility for their companies' books. That and other such new regulations may not entirely prevent the next Enron.

But Enron's saga shows they are much-needed steps -- and likely Mr. Lay's most enduring legacy. If "I didn't know" ever cut it, it doesn't anymore.

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