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Enron Verdict: GUILTY

• Ken Lay, Former chairman and founder, 64: Guilty on six counts including conspiracy, wire fraud and securities fraud. Guilty on four counts in separate bank-fraud trial. Free until Sept. 11 sentencing. Faces maximum 165 years in prison.

• Jeffrey Skilling, Former CEO, 52: Guilty on 18 counts of conspiracy and fraud and one (of 10) counts of insider trading. Free until Sept. 11 sentencing. Faces maximum 185 years in prison.

Enron’s emblematic emasculation embodied the turn of the century corporation gone bad, and catapulted the field of socially responsible business onto the popular culture radar of America.

The larger danger lied in the loss of trust by average investors in the very system. An appeal is automatic. The grounds? Speculation centers on the aptly named concept of “Deliberate Indifference” -- a lower standard than affirmative knowledge (as it sounds).

The jury instructions are said to have been similar to those given in the trial of Enron's auditors, Arthur Andersen, which resulted in an overturned guilty verdict on appeal to the Supreme Court because they were vague and “flawed,” despite the disintegration of the firm by that point.

Appeal long enough and in addition to staying out of jail Lay and Skilling may become this year’s model of Frank Quattrone, the Credit Suisse First Boston technology banker who was accused of contributing to the late 90s burst of the tech bubble, but whose conviction on obstruction-of-justice charges related to a federal investigation of stock IPOs was overturned on appeal by a judge based on those pesky, nebulous jury instructions again.

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Meanwhile, the University of Missouri Kenneth L. Lay Chair in Economics remains vacant. “The University has advertised the economics chair nationally and has continued its search for an outstanding scholar to fill this position. The Lay Chair has not yet been filled.”

Carbon Dioxide Is Good for You

No, this is not my tongue-in-cheek, sarcastic quote of the day lampooning conservative climate change deniers. Why bother when they’ll do it for me.

The line can be heard in a current ad campaign by a conservative, small government group called the Competitive Enterprise Institute (CEI). The ads are running in 14 U.S. cities from May 18-28, 2006. The cities include Albany, NY; Albuquerque, NM; Anchorage, AK; Austin, TX; Charleston, WV; Dallas; Dayton, OH; Denver; Harrisburg, PA; Phoenix; Sacramento and Santa Barbara, CA; Springfield, IL; and Washington, DC.

Far right conservatives agree with many of those on the other side of the aisle on one key angle, however: “The campaign to limit carbon dioxide emissions is the single most important regulatory issue today,” says Marlo Lewis, a CEI senior fellow in environmental policy. Of course, CEI only thinks it’s important because of the need “to counter the flood of scare stories on global warming.” (Nice touch with the flood metaphor)

To show this is not necessarily a left/right issue, the Evangelical Climate Initiative, a group of more than 85 influential evangelical leaders, issued the statement Climate Change: An Evangelical Call to Action in February – another fault line between pro-business and social conservatives.

Locally, I have seen the ad, which can also be found in the dictionary next to the phrase Greenwashing. (For more on this phrase, see the previous post: SCANDAL WATCH: Jury Out on Enron?)

SCANDAL WATCH: Jury Out on Enron?

HOUSTON – The stock market faces a landmark test of credibility with the outcome of the Enron trial on which a jury is deliberating as I write this. By extension, the social responsibility of business is on trial as well. Critics call it PR. Greenwash in the case of the environment. Or “Astroturf” (as opposed to grassroots) when hidden behind the veneer of a nonprofit that purports to represent a public groundswell rather than a publicly traded company.*

One quote from Enron’s 2000 Annual Report warrants continuing vigilance by the common investor: “We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be” (As cited by Steve Lydenberg in his 2005 book Corporations and the Public Interest: Guiding the Invisible Hand, Berrett-Koehler Publishers).

Enron issued a socially responsible business report. It had staff in charge of socially responsible business. It lied.

If former Enron chair and CEO Ken Lay and former CEO Jeffrey Skilling get off, it will set back the state of socially responsible business a generation. Every generation has its defining moments that impact future generations until their own collective watershed moment when the stars align and the structures that separate us from animals in the investment wilderness show themselves for what they are – a glorified honors system that unethical people will take advantage of until they’re caught when egregious enough to warrant slow moving systems of justice to devote their resources to investigating the problem within the narrow confines of laws that expensive lawyers can’t get around.

“My staff did it,” and “I didn’t know” rank right up there in the annals of modern excuses with “I don’t remember” and “I want to spend more time with my kids.” "Rules," Lay said, "are important, but you should not be a slave to rules, either," and “there's no way I could take responsibility for the criminal conduct that I didn't know about."

We want to believe that Enron was just one of a few bad apples, along with:

• WorldCom (The BIGGEST bankruptcy ever -- $11 billion accounting fraud)
  
• Global Crossing (The sixth largest bankruptcy in U.S. history)
  
• Adelphia ($2.3 billion in hidden debt)
  
• Royal Ahold ($1.1 billion settlement)
  
• AIG ($2.3 billion restatement)
  
• HealthSouth ($1.4 billion in false earnings, says SEC)
  
• Fannie Mae (Over $10 billion in accounting errors)
  

etc.

And we don’t want to believe people like former Enron executive, and author of Confessions of an Enron Executive: A Whistleblower's Story, Lynn Brewer – when she said just about a year ago that “100 of the FORTUNE 500 companies could possibly be cooking their books.”

While some corporate executives have been punished for taking away much needed trust in our financial markets, Enron stands as a symbol that must have closure. Reputations take years to build and minutes to lose. My hopes and investments lie with the jury of eight women and four men in Houston, Texas.

…

Meanwhile back in the jungle, as the New York Dolls once sang about Vietnam, Kenneth Lay started his second trial on bank fraud violations where he stands accused of lying about how he used a multi-million dollar line of credit (i.e. “I won’t use it to buy stock,” and then using it to buy stock).

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Showing the game is never up, as long as the lawyer fees get paid, an embodiment of tech bubble prognostication, who may have lost you more mutual fund money than anybody else by recommending stocks he had a financial interest in – former Merrill Lynch internet stock analyst star Henry Blodget, has admitted no wrongdoing. The firm paid $200 million in penalties. His worst penalty? He can’t work in the securities industry and prescribe stock picks again.

To keep up with the sage’s advice on the tech industry, simply view his blog, where it helpfully notes that Blodget or others in his employ “own stock in Yahoo!, Time Warner, Amazon.com, eBay, and Microsoft and may own stock in other companies mentioned here.”

*What does the nebulous phrase socially responsible business mean? It’s the responsibility a business has to its employees, shareholders, customers, suppliers, stakeholders and communities where it operates. (Cohen, J. (2004) “Socially Responsible Business: Global Trends,” in A Future for Everyone, Routledge and elsewhere).

Big Box Organic – You Are What You Eat

What starts out as an altruistic pipe dream – changing the world in some positive way, faces some tough decisions along the way – just ask Google.

A famous often-quoted saying by Margaret Mead goes “A small group of thoughtful people could change the world. Indeed, it's the only thing that ever has.”

But what Margaret doesn’t say is how to deal with going beyond that small group of thoughtful people to deal with those who don’t share that original zeal, but are needed to carry it to others who don’t share that original zeal.

The biggest dilemma in any movement for change is scale – and keeping a semblance of the original goals intact upon hitting the mainstream. Enter the world’s largest retailer, Wal-Mart, with plans that will change what you eat forever.

The company has announced that it will start offering organic food at just 10 percent over the cost of conventional food.

The very definition of what it means to be organic (i.e. certification by an independent third party) will become more important than ever, and face more pressure than ever now that Wal-Mart and its massive network of suppliers will be in the game. “Many of the nation's major food producers are hard at work developing organic versions of their best-selling products,” NPR reported on May 12^th, which will in turn squeeze out every inch of profit and supply chain efficiency as with every other Wal-Mart product line.

Organic products of all kinds will be introduced to a market that did not go far beyond a stable of health food stores not long ago, and become the norm rather than the exception. Parents: Wal-Mart recently offered the first organic infant formula available at a mass retailer. Further, the 800 pound retailing gorilla is introducing George Baby organic cotton clothing for infants this month, which is made with 100 percent certified organic cotton.

On the plus side, organic food and clothing will become cheaper, allowing multiples of consumers to buy healthier food on a regular basis and support healthier farming practices as a result.

Read the label: Unless a product is “100%” organic, it is not. That is, five percent of the ingredients in food labeled organic and 30 percent in those labelled “made with organic ingredients” may be nonorganic. Many revisions to these standards go unannounced, despite the tremendous public interest, as evidenced by the record 275,000 comments from the public submitted when the government was pressured to water down the standard for organic labels in 2002. “Since 2002, there have been repeated assaults on the [Organic Standards] board's authority and on the standards themselves from companies that want to reap the benefits of the organic label without the burden of higher production costs.”

When the New York Times, NPR and Consumer Reports are covering a story that means it’s news.

If you have any interest in what goes into your body, read the label.

…

On a somewhat related note, Fast Food Nation – the essential book now turned film, debuts at Cannes this month. Fave director Richard Linklater, he of Slacker, Dazed and Confused and School of Rock fame, stands as the man behind the camera.

Excerpt from a Forbes magazine interview with Fast Food Nation author Eric Schlosser:

Q: Aren’t fast-food chains just supplying what American appetites demand?

A: The American people were not demanding chicken nuggets.

The industry has done a lot to create that demand. Also, hamburgers and fries only became the national dish after marketing made it that way following World War II.

ABN AMRO Bank Finds Out if All Press Is Good Press

The World Environment Center awarded its 2006 Gold Medal for International Corporate Achievement in Sustainable Development to AMB AMRO Bank last night for its work on the Equator Principles, the first ever framework for incorporating environmental and social issues in private bank lending for large ($50 million and over) development projects.

The company’s commitment to those very principles lies at the heart of controversy surrounding involvement in the Sakhalin oil project in the Russian far east. Touted as “the world’s largest oil and gas project” by its developers, the project includes plans for two 500 mile pipelines as well as undersea pipelines valued at over $12 billion.

The Rainforest Action Network and others ran a full page ad in yesterday’s Washington Post (a popular tactic by both business and NGOs of late – see the May 10th BUSINESS-WATCH post), and planned a protest for last night’s awards ceremony.

A key issue here is assuring that companies abide by the principles and standards they commit to. A company that adopts the Equator Principles is supposed to “individually declare that it has or will put in place internal policies and processes that are consistent with the Equator Principles."

Without a credible enforcement mechanism, preferably monitored by an independent, external third party, business cannot expect its stakeholders to simply take their word on it in our post-Enron world.

NGOs Control Wall Street, Business Group Says

The Washington Post ran a piece on health research this week, which revealed that PERCEPTION of a given fear has the same effect as if actually experiencing the fear.

Today’s Washington Post ran a FULL PAGE AD with a man wearing a ski mask under the bold header “I Control Wall Street.”

Who feels so aggrieved you ask that they would take out such a full page ad? None other than Life Sciences Research Inc. – whose wholly owned Huntingdon Life Sciences subsidiary tests products on some 75,000 animals each year, and is public enemy number one to a particularly rabid strain of NGOs. The company claims they were yanked from being listed on the NYSE “minutes before” its scheduled launch, because the big board was “reportedly threatened by animal rights activists,” who are alternately referred to as “terrorists.”

“Will Your Favorite Blue-Chip Be Next?” asks the NYSE Hostage web site. “Anti-business activism” is said to be alive and well, including eco-terrorists and also labor unions as part of a movement. The site surprisingly features a direct link to the NGO Stop Huntingdon Cruelty, which is said to have 100 corporate targets in its crosshairs.

Publishing Plagiarism Payback

Plagiarism payback burned Raytheon CEO Bill Swanson and Harvard sophomore Kaayva Viswanathan this past week. Swanson's company produced a booklet of business advice that turned out to have been lifted from a 1944 book, and Viswanathan's Little, Brown & Company published book about how to get into Harvard (of course) turned out to have lifted from two previous coming of age novels.

Swanson had garnered accolades for his business acumen, Viswanathan for her eye popping advance of $500,000. Swanson said staff compiled material he had collected in a file for years. Viswanathan said she "internalized" the other books as a fan.

Raytheon stopped distribution of the 300,000 run booklet and will not give Swanson a raise this year as a result. Viswanathan's 100,000 print run has been pulled from the shelves, the second book in her contract will not be published and a movie deal has fallen apart.

After Enron, WorldCom, et al, Congress passed the Sarbanes-Oxley law that required business executives to vouch for their company's financial statements.

We now need Sarbanes-Oxley for writers.