The Good Guys Didn’t Win
On October 24th, 2006 Former Enron CEO Jeff Skilling was sentenced to 24 years 4 months as the sole remaining defendant in the Enron scandal. He will also be ordered to pay approximately $45M to a defendant restitution fund. The remaining money he has will go to pay his lawyers. The Judge in the trial when issuing the sentence said “As the many victims have testified, his crimes have imposed on hundreds if not thousands a life sentence of poverty,” Judge Lake said, responding to criticism of the sentence as overly harsh.
Skilling’s sentence was only the second longest ever given for CEO white collar crime in the US, that discinction belongs to Bernie Ebbers (CEO WorldCom) who received a 25 year sentence a few months back.
Skilling left behind in his wake a shattered company, a fallen former venerable giant of the audit industry, bankrupt investors, tarnished bank reputations, and as Judge Lake mentioned the significant impact on the tens of thousands of Enron Employees.
Core values of honesty, integrity, humility, giving back to the community sometimes are paid lip service in this current business environment. The CEO’s of this generation owe it to themselves, their employees, partners and investors to adopt transparency and core values that will help prevent this from happening again. Smart but dishonest CEO’s will also find a way around the SEC’s Sox 404 regulations as they try to push the envelope and maintain earnings growth to maintain their personal wealth stream. External regulation will never be enough.
I have personally been in a situation where we were subtly asked to ship a software product to customers that was not ready. This was back in 1998 well before the SOX regulations but in the era of new FASB reporting requirements for Software Revenue recognition. At that time I was the CFO of a start-up here in Denver. The story is rather long and convoluted, but the net result was we did not ship in time. This despite me personally taking over the product testing and securing the Customer’s OK to ship and pay us if we passed our internal beta testing. We didn’t as we still had several “Severity 1 Bugs” in the product. Our core quality specifications and commitments to customers were that we would not ship if it didn’t work. No one would have found out as the beta would not have been used in a production environment. But I knew, the CEO and Board knew. More importantly our key employees and small but highly valued number of customers knew. I never wavered in my recommendation. While the Board argued about the implication, the decision to not ship the software was not reversed. And we paid the price. We missed our shipment. We missed our quarterly revenue number. Stock got hammered - tens of millions lost in market cap value. All of the officers personal holdings were impacted just as our shareholders were – we shared the pain. I look back and think, no I know I would not do it differently if I had another chance – there is not an alternative once you stray from your core values.
The good guys didn’t win in this case either, but at least I could sleep at night. My 2 cents.