Guilty of crimes — and a whole lot more.
Regardless of whether Thursday's jury verdicts against Kenneth Lay and Jeffrey Skilling are upheld, testimony from 56 days of trial has sealed what is sure to be history's judgment — one that is unlikely to be vulnerable to appeal.
The Enron case will long stand as the reflection of an era of near financial madness, a time in the late 1990s when self-certitude and spin became a substitute for financial analysis and coherent business models. Controls broke down and management deteriorated as arrogance overrode careful judgment, allowing senior executives to blithely push aside their critics.
Indeed, it could be argued that the most significant lesson from the trial had nothing to do with whether the defendants, both former Enron chief executives, committed crimes in the series of transactions charged in their indictment. Instead, the testimony and documents admitted during the case painted a broad and disturbing portrait of a corporate culture poisoned by hubris.
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"Enron is one of the great frauds in American business history," said James Post, a professor of management at Boston University. "But it is also a symbol of a particular era of management practice. The excesses of Enron point pretty clearly to what was going on in mainstream companies across the business landscape in the 1990s."
That may go a long way toward explaining the seemingly inexplicable: How corporate America became infused in the late 1990s by greed and criminality, leading to scandal at corporate giants ranging from Enron to WorldCom to Adelphia.
It was not simply that the ethics of the corporate world changed overnight; the ever-rising bubble of market prices created a sense of invincibility among corporate executives, who read market delusions as proof of their own genius. Arrogance gave way to recklessness, which in turn opened the door to criminality.
So poorly run for so long
That message was hammered home, again and again, throughout the trial of Skilling and Lay. Paula Rieker, an executive with the company's investor-relations group, testified to her fear of correcting Skilling when he made what she considered to be false statements to investors.
Vince Kaminski, a top risk analyst, spoke of how Skilling became increasingly difficult to contradict as Enron won plaudits from the marketplace. And Ben F. Glisan Jr., the treasurer, portrayed an "Emperor's New Clothes" culture, in which no one was willing to challenge the rule-bending and recklessness as the company's executives charged into one ill-considered business line after another.
"I would think that most observers of this trial would be shocked and surprised that Enron was such a poorly run company for so long," said Stephen Meagher, a former federal prosecutor who now represents corporate whistle-blowers in San Francisco. "But as long as the checks kept coming in and stock price kept going up, it was easy to look the other way and ignore the obvious clues that there were deep problems there."
In the end, although many in the public seem to believe this was a case about the collapse of Enron, that had little to do with the criminal charges. In the closing arguments, the government made sure to separate the allegations of criminality from the responsibility for Enron's collapse.
The testimony and evidence suggested that Enron executives could not even agree on what the company's business was. There was no doubt that Enron made the lion's share of its profits from trading natural gas contracts. But trading companies rarely win stratospheric stock prices; the risks and requirements for credit in such businesses temper potential market enthusiasm. So some executives argued that Enron was not a trading company, but a logistics business involved in every step of the production and delivery of commodities — and therefore deserved its once-lofty stock price.
Trials' lessons not lost
The trial underscores that neither defendant fully accepted what happened at their company. Lay testified that the collapse was largely caused by short-sellers, critical articles in The Wall Street Journal and a resulting panic in the marketplace.
The trial's lessons about the importance of quality management and strong finances in avoiding scandal, experts said, have not been lost on the audiences that perhaps matter the most: the executives who manage corporate America and the government regulators who look over their shoulders.
"Some people say this is the end of an era, but I don't think it is," said George A. Stamboulidis, a partner with Baker & Hostetler who was appointed as a monitor at Merrill Lynch as part of that firm's settlement of an Enron-related case. "This fuels the government and boards and investors to continue to push for more accountability, more transparency and better management."
Those continued efforts, coupled with the changes of the past, should mean that the kind of troubles that emerged at Enron are, at least for now, less likely to appear on the corporate landscape.
"Hopefully," Stamboulidis said, "the ways businesses are run in 2006 are very different from the ways the businesses were run in the 1990s."
● Kenneth Lay: Guilty on all six counts of conspiracy, securities and wire fraud in the corporate trial; guilty on four counts of bank fraud and making false statements in his personal banking trial.
● Jeffrey Skilling: Guilty on 19 of 28 counts, including conspiracy, securities fraud, wire fraud, false statements, bank fraud and insider trading. Not guilty on nine counts of insider trading.
Sentencing is set for Sept. 11.
Lay faces up to 45 years in prison in the corporate case and 120 years in the personal banking case.
Skilling faces up to 185 years in prison.