Enron Trial in Jury's Hands The collapse of Enron scarred a generation of investors, managers and accountants. Four years later, the trial of former top executives comes to a close.
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Enron Trial in Jury's Hands

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Enron Trial in Jury's Hands


Enron Trial in Jury's Hands

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This is TALK OF THE NATION. I'm Neal Conan, in Washington.

It's all over but the verdict. Four years after the spectacular collapse of Enron, former executives Jeffrey Skilling and Ken Lay wait to see what the jury makes of the case. Both men face multiple counts of fraud and conspiracy; broadly, they're charged with covering up Enron's losses as what was once the seventh most valuable company in America spiraled down the tubes.

The verdict is already in on Enron's accountants. Arthur Anderson went out of business after almost 90 years. The disaster ruined many Enron workers, who believed the sunny reports from headquarters and bought company stock for their retirement plans.

After four years and many weeks of testimony, the case of the Crooked E is more compelling and more complex than ever. Enron's fall was not a clear-cut case of simple fraud, the crisis at Enron was obscured by a fog that diffused blame and blurred the line between bad management and deceptive management.

As innovation continued even in the depths of crisis, few companies have been more inventive at keeping up appearances and making wrong appear right. So what is Enron's final lesson? What can we actually learn from one of the largest and most public bankruptcies in our nation's history?

Later on in the program, we're still addicted: the straight dope from Political Junkie Ken Rudin. Our guest today is Bob Casey, who won the democratic nomination for U.S. Senate in Pennsylvania yesterday. If you have questions about his upcoming race against Republican Rick Santorum, or about the other primaries yesterday in Oregon and Kentucky, as well as Pennsylvania, you can send us an e-mail now. Our e-mail address is talk@npr.org.

But first, how did the fall of Enron change the way your company does business? If you're a manager or an accountant, we'd like to hear from you. We also welcome calls about what happened in court these past few months. Our number here in Washington is 800-989-8255, 800-989-TALK, and the e-mail address is talk@npr.org

We begin in Houston. Reporter Mary Flood with the Houston Chronicle joins us from the federal courthouse there today. Nice to have you on the program again, Mary.

Ms. MARY FLOOD (Reporter, Houston Chronicle): Thanks. It's great to be back.

CONAN: Prosecutors had their last chance to argue in front of the jury today. What was their final word?

Ms. FLOOD: Their final word was that this is about truth and lies, it's black and white, it's simple and they should go back there and find these gentlemen guilty on 34 charges.

CONAN: And that after what was, by all accounts, a virtuoso performance by Defense Attorney Daniel Petrocelli yesterday.

Ms. FLOOD: Yeah, he went about three hours, and then--a little more than three hours, and then the Lay lawyers split their three hours. Mr. Petrocelli was highly regarded by the journalists, but there was a point where he turned the jury off. And I'm not sure why, but they kind of clammed up on him at one point yesterday.

CONAN: You just saw their reaction--they shuddered somehow?

Ms. FLOOD: Well, they did a couple of things. One, they stopped laughing or even smiling at his jokes while other people continued to. And they also, at one point he said, now, write this down, and none of them did. And we saw them with lawyers after him and with prosecutors write things down when they were told to, but they didn't with Mr. Petrocelli.

He was talking about a witness, David Delaney, that I'm beginning to think the jury kind of liked.

CONAN: Hmm. As we obviously go into the last phase of this trial we go back almost to that first phase, where they were selecting jurors in the veneer process, and both sides are playing that game of trying to get the right jury for this case.

Ms. FLOOD: Yes. And both sides, I think, were somewhat disappointed. There were an awful lot of people who knew a lot about this case; a lot of people who had some opinions about this case. Obviously, something the defense was worried about. But it turned out to be, you know, a concern for the prosecution, as well. There were people in the panel who were connected to the defendants, some of whom actually wound up on the jury.

CONAN: After weeks and weeks of testimony, is this one of those cases where there's just a blizzard of arguments and facts?

Ms. FLOOD: Certainly. There's just--there's an enormous amount that they pounded the jury with in the last three days, and they're, you know--I can't remember how many boxes are going back with the jury, but I think it's a couple dozen.

CONAN: Wow. And a lot of it, though, at the end of the day, depends on what people make of the defendants, of various witnesses; whether they liked them or not.

Ms. FLOOD: That's exactly right. And this is, in a lot of ways, about character and about credibility of all of the witnesses, but especially about Mr. Lay's and Mr. Skilling's credibility with the jury.

CONAN: And was the prosecution able--we all know Perry Mason moments don't actually happen very often in courtrooms, but was the prosecution able to dent their stories?

Ms. FLOOD: Certainly. They did. And I think the lawyers watching and the journalists watching were surprised that the prosecution did as good a job as they did. They were--they tried a very strong case, but so did the defendants.

This was tried at a very high-skill level by everybody involved.

CONAN: Hmm. So there may be appeals, and we'll get to that in a moment, but not based on the quality of the lawyering involved.

Ms. FLOOD: No, and the only question on that was that Mr. Lay's chief lawyer, Mike Ramsey, had a couple of small operations during the trial and missed part of it. But Lay waived his right to complain about that and went ahead with his, you know, very deep bench of lawyers, including his daughter, who is a lawyer, who has sat next to him through the trial.

CONAN: And getting back to the possibility of an appeal, the judge in this case gave the jury what's, I guess, regarded as a controversial instruction. They are meant to consider whether the defendants acted with deliberate ignorance. A, What does that mean; and B, why is it controversial?

Ms. FLOOD: Well, it means--I like calling it the Sergeant Schultz instruction better: I see nothing; I hear nothing. The idea is that the gentlemen put their heads in the sand and refused to see red flags, refused to see the things that were going wrong around them, and claimed that they didn't know because they didn't fully inform themselves.

It's controversial, actually not so much here in Texas in the Fifth Circuit, but I think defense attorneys around the country are trying to make it more controversial--it's part of the Bernie Ebbers' appeal--with the idea that it shouldn't even be put forth, because it somehow could lower the bar of intent for the jury, make them think that they don't have to go as far to figure out that Mr. Lay and Mr. Skilling willfully and knowingly did what they did.

CONAN: And that question of intent is absolutely critical. I understand it was a big part of Petrocelli's wind-up yesterday.

Ms. FLOOD: Yes, and it was a big part of what Mr. Berkowitz said today. Intent is key to all of these crimes.

In all of these cases, the jury has to, in some way, get into the minds of Mr. Lay and Mr. Skilling and believe that they knew what was going on at Enron and they willfully and intentionally lied about it to the public and to their employees. They don't have to do psychoanalysis, as the government told the jury. What they have to do to look at this is see what they knew; what people said they were told and they were shown, versus what they said.

So it's sort of a circumstantial way to look into their minds.

CONAN: And I understand Kenneth Lay goes back into court on Thursday on separate charges.

Ms. FLOOD: Yes, he's got four personal banking charges. They have nothing to do with Enron, but obviously they were found by the Enron prosecutors as they were doing this investigation.

He's basically accused there of telling three different banks that he was taking money that he would not use to buy stock on margin, but he then used that money to buy stock on margin.

The banks didn't lose anything, but the law says this is about risks to banks. It's a law that comes from the 1930 stock crash, saying we don't want banks being at too much risk. And it may be sort of an open-and-shut case. It's going to certainly be a short one.

CONAN: And this is not in front of a jury, but in front of the same judge who's heard the big case?

Ms. FLOOD: Yes, it's a risky venture for Mr. Lay. This judge, Simeon Lake, is known as sort of a law and order, black and white, rule-following judge, and arguments like, gee, they haven't gotten anybody else for this, and other people do it, or gee, they don't use this rule very much, aren't going to go very far in that court.

CONAN: Mary Flood, a reporter for the Houston Chronicle who's been covering the Enron trial. And wow, I guess, Mary, there's a prospect you may get to do something else in the near future.

(Soundbite of laughter)

Ms. FLOOD: I am just really hoping that that happens. If we don't get a verdict, I don't know, I don't know, I don't know.

(Soundbite of laughter)

CONAN: The prospect of a re-trial, you could, I don't want to reduce you to tears.

(Soundbite of laughter)

Ms. FLOOD: Thank you.

CONAN: Mary Flood joined us from the federal courthouse in Houston. Thanks very much.

Ms. FLOOD: Thank you.

CONAN: Let's go now to Malcolm Salter.

Malcolm Salter is the author of a forthcoming book called, Innovation Corrupted: The Origin and Legacy of Enron's Collapse. It's forthcoming from the Harvard University Press. And he's with us from the studios of WGBH in Boston, Massachusetts. Nice to have you on the program today.

Professor MALCOLM SALTER, (Professor; Senior Associate Dean for External Relations, Harvard University; Author, Innovation Corrupted: The Origin and Legacy of Enron's Collapse): Nice to be here.

CONAN: And, innovation, one of the curiosities about Enron is that it innovated a whole lot of things, including--at least according to the allegations that were heard in that courtroom in Houston, Texas--it innovated its way to bankruptcy.

Prof. SALTER: Well, you could say that, but what's interesting about this case, as a business case as opposed to a criminal case, is that at the beginning, there was real innovation. If these were just a group of dummkopfs in Houston, no one would really be interested in it. But there was really true innovation at the front end. And then it got corrupted along the way.

And the innovation was really around the natural gas strategy. And what they basically did, in economics terms, was to solve a contracting problem between the producers of gas and the users of gas. And Skilling created sort of a warehousing operation called a gas bank; standardized a lot of contracting and created a fluid market for this commodity that never existed before.

They really got prices in line with supply and demand. And then, on top of that, created a trading platform, Enron Online, which, in something like nine months, became the largest Internet commercial operation in the world and was the number one buyer and seller of gas and electricity in the U.S. and in Europe. So there was really a lot of innovation at the front end.

CONAN: As people have pointed out, one of the problems of this was that it turns out electricity is not like gas, in a lot of ways.

Prof. SLATER: It's not like gas in a lot of ways. But the pieces of the business that were even more dissimilar were broadband and the water. And one of the issues here was, what I would call, sort of the naive extrapolation of a successful business model. What worked in--really worked well in natural gas, worked somewhat in electricity, just didn't work with water and with broadband.

For example, you just can't store water.

CONAN: Right.

Prof. SALTER: Let's start there.

CONAN: And when these innovations got corrupted, what happened there? Because, again, according to these allegations, they were squirreling away their losses in these partnerships.

Prof. SALTER: Yeah, well what happened here--what I've been trying to do over the last three or four years, Neal, is I've been actually trying to write the death certificate of Enron. And I've been sort of like a--kind of forensic pathologist. And I've been trying to figure out what the pathway was and what the pathogenesis of the disease was.

And, of course, this all began with innovation. And innovation was followed by overconfidence and what I call is reckless gambling: when they began to take this model into areas that it didn't' work. I use the word reckless gambling as a term of art, because intelligent gambling is good. That's what business is all about.

And then, once we got into this gambling mode, you had the reinforcement by perverse incentives. These incentives festered into a culture of deceit. And then, to your question, then this deceit fostered an ethical drift.

And the drift began actually way back in 1997, which was the first dip in earnings of Enron. And they began to get into some economic distress and they began to do the first of the many transactions that took them down the road of managing earnings, which was the (unintelligible) transaction.

CONAN: Well…

Prof. SALTER: To follow this with--let me stop there.

CONAN: All right, we'll finish filling out Enron's death warrant when we come back after a short break. If you have questions about what caused the collapse of Enron, or, more importantly, what lessons can be drawn for the way we do business today. How is Enron and its legacy affecting the way you do your job? 800-989-8255; e-mail us: talk@npr.org.

I'm Neal Conan, we'll be back after the break. It's the TALK OF THE NATION from NPR News.

(Soundbite of music)

CONAN: This is TALK OF THE NATION. I'm Neal Conan, in Washington.

The trial of former Enron executives Kenneth Lay and Jeffery Skilling wrapped up and went to the jury this morning. More than four years after the company collapsed, we know how it happened. What does it mean now?

Our guest is Malcolm Salter, professor at Harvard Business School, working on a book about Enron called, Innovation Corrupted: The Origins and Legacy of Enron's Collapse. And, of course, you're welcome to join the conversation.

Has the trial changed your mind about Enron's management? If you're a manager yourself, or an accountant, how did this case change the way you run your business? 800-989-8255; e-mail is talk@npr.org.

At our website, npr.org, you'll find breaking coverage of the Enron trial and analysis from NPR's Wade Goodwyn of former executives Lay and Skilling's performance on the stand.

In the meantime, Malcolm Salter, of course, I shouldn't have said death warrant, but death certificate. And you were talking about how they innovated their way into this at the end.

Prof. SALTER: Yes, and once we had this ethical drift that I talked to you about…

CONAN: Mm-hmm.

Prof. SALTER: …that really started in 1997. This wasn't picked up by the board. And this is all complicated by collusion with financial intermediaries. These are banks that basically aided Enron and transactions to try to either discuss the true financial position of the company or to help manage reported earnings. And so net--net what we had, Neal, was within the company and outside the company, sort of the rise of a delinquent society…

CONAN: A delinquent…

Prof. SALTER: This is why this is a marker case, as far as I'm concerned. That we had sort of a normalization of deviant behavior, both inside and outside the company for this period in time; which is why it's such a fascinating case, for me and other business people.

CONAN: Let's get some listeners in on the conversation. And we'll start with, Jennifer(ph). Jennifer calling from Minneapolis.

JENNIFER (Caller): Good afternoon, Neal.

CONAN: Afternoon.

JENNIFER: I'm a paralegal in Minneapolis, and just talking about the whole fallout from Enron and the Sarbanes-Oxley laws.

CONAN: Mm-hmm. That's the reform legislation that was passed in the wake of Enron's collapse, but go ahead.

JENNIFER: Correct. It's really kind of spawned a whole little cottage industry, because there's special needs for people who are knowledgeable about the laws, like special training for people to become knowledgeable. And our company is actually--had to go to even greater lengths than normal in order to comply with Sarbanes-Oxley, at more costs…

CONAN: Mm-hmm.

JENNIFER: …of doing business.

CONAN: Malcolm Salter, the cost of Sarbanes-Oxley have been noted by many, including Jennifer.

Prof. SALTER: Right, let me just say that Sarbanes-Oxley, which was passed in a panic after Enron's collapse, I think probably had net--net some positive impact on the U.S. economy and the faith in American capitalism. I do not think it's going to solve the governance problems of Enron or other corporations; neither will the courts, by the way.

It's had a positive effect, because if you look at the returns of many major corporations, they are--it's below their cost of capital, which means they destroy economic value. And a lot of it has to do with sort of the oversight and control mechanism. So probably, it has had some impact to increase some discipline within the firms. It's very, very costly.

CONAN: Mm-hmm.

Prof. SALTER: But that's not really the problem at Enron. Enron had a different set of problems. So I don't really see Sarbanes-Oxley as a solution to the Enron problem.

CONAN: Jennifer, at your company, is this legislation just seen as government regulations that's costing us a lot of money? Or do people see a reason for it? Jennifer?

JENNIFER: Oh, I'm sorry, excuse me.

CONAN: I was saying, at your company, do people complain about Sarbanes-Oxley, as, oh, this is a government regulation that is costing us a lot of money? Or, do people say there's a reason for this.

JENNIFER: No, I think that most people within our organization complain about the additional cost to our company and added cost to doing business, as a result of the regulation. Our company has its own internal governance policies and…

CONAN: Mm-hmm.

JENNIFER: …I think that we do a really good job of having ethical accounting and things. And so then, all the additions that we have to comply with, Sarbanes-Oxley is just kind of more--looked at more as red tape.

CONAN: Mm-hmm. Okay, Jennifer, thanks very much.

JENNIFER: Thank you.

CONAN: Appreciate it. Let's turn now to, Jeff(ph). Jeff's calling us from Cincinnati.

JEFF (Caller): That's correct, thank you very much.

CONAN: Go ahead, you're on the air, Jeff.

JEFF: Just a quick question: I'm an executive for a Fortune 50 company. And I'm just shocked and amazed and have a question on how all this innovation got through what we normally call the checks and balances at the higher level, higher echelon, board of directors, accounting so and so forth, including the government.

And I just thought, perhaps, Malcolm could comment on that, because I'm still finding it hard to believe during this evolution that it escaped those typical, ordinary checks and balances.

CONAN: Malcolm?

Prof. SALTER: Great question, gets right to the jugular on all of this. Couple of things happened that were--I have to say, and then I'll tell you about what happened. First of all, a lot of the practices and a lot of the transactions are in the netherworld between what's clearly the right thing and what's clearly the wrong thing.

So there are a lot of close calls on these transactions, number one. Number two, there are a lot of perverse incentives both in the risk analysis and controls side of the house and on the--that basically got people to push the outside of the envelope. Don't forget, we live in a rules-based society, and I think there was a lot of emphasis in this company of let's kind of get up, sail as close to the wind as you can on these rules.

With respect to the board of directors, keep in mind the board was never charged in the class action suit for illegal breach and fiduciary duty. In fact, my analysis shows that there was none. And that's basically because the standards are relatively low, so that people will want to be directors.

But, basically, I think, the board didn't use the kind of due diligence that one would really expect for a whole variety of reasons. Starting, perhaps, with the fact that the executives were pursued--were looked at as kind of rock stars for a period of time.

And when you've got rock star managers, you know, the board, in a sense, becomes a, you know, sort of the groupies. But the other thing that's really important--and particularly, Jeff, if you're an executive with a fortune 500 company, you'll appreciate this--a lot of the members of the board didn't understand the financial technologies being used.

And it's very hard to provide tight oversight in control when you don't understand the product technology or the R&D technology, or the process technologies involved. In this case, the financial technology was really what this company was all about.

CONAN: I can understand their confusion, I've read about this and I'm still confused.

Prof. SALTER: Well, I think a lot of people are confused. This is a very, very complicated--very, very complicated case. And one of the things that's so interesting about it, and one of the things that I think that is why this is such a marker case for all of us who are interested in business, is that this case lies in the penumbra, between clear right doing and clear wrongdoing.

CONAN: Mm-hmm.

Prof. SALTER: There are a lot of transactions, which strike me, as sort of a social scientist, as being deceptive, but not all of them strike me as being illegal.

JEFF: Yeah. But typically, ordinarily, you'll have at least one, two members of a board who ask what I like to call those dumb questions. And something always ends up getting sniffed out, at least that's what my experience has been. And I just still find it, even though you might have a very general ignorance of the complexity of it, you still have a very broad knowledge of what is going on financially.

And I just--it's still shocks me a little bit that those questions didn't surface. But, in listening to what you said, one of the impacts this Enron case might have and probably should have, is the selection of the board from the shareholders, to make sure that we have those checks and balances in place.

Prof. SALTER: That's a very big deal. That's a very, very big deal. The only--I think that's right on the point. The only other thing that I would add to this, Jeff, is the fact that Skilling and Lay sort of fed out of the trough of sort of revolutionary management. Early Peter Drucker…

JEFF: Mm-hmm.

Prof. SALTER: And--and I think that they basically had an attitude, and I'm sure the board felt this, as well, they were really trying to be at the cutting edge of just about everything, in terms of--not only in terms of trading commodities, but also in terms of logistics.

And I think it was this attitude, which is, let's not only create a new game, but let's change the game…

JEFF: Right.

Prof. SALTER: …that may have led to this adventuresome, which I think got quite reckless over a period of time.

CONAN: So, Jeff, are you a rock star executive?

JEFF: No, quite the opposite, as a matter of fact.

(Soundbite of laughter)

CONAN: Well, we wish…

JEFF: I want to say that, that in fact...

Prof. SALTER: Bless you, Jeff.

(Soundbite of laughter)

JEFF: Pardon me?

Prof. SALTER: I said, bless you, Jeff.

JEFF: Well, no, I'd say (unintelligible). Well, I look forward to the book. I think that would be very interesting. And those types of books, I think, cause you to do a lot of introspection--and do that. So I'm really looking forward to that. I'm glad you took the time to do this.

Prof. SALTER: Thank you, Jeff.

JEFF: So thanks for the time.

CONAN: Thanks of the call.

Prof. SALTER: Thank you.

CONAN: Let's talk now with, this is, John(ph). John is calling us from Boca Raton in Florida.

JOHN (Caller): Yes, gentlemen. In the two books that I've read, Conspiracy of Fools and I forgot the name of the other, I am convinced as a result of those books that Lay was just completely clueless about it. He's out there playing golf and rubbing shoulders, not bothering to get involved with the details. Skilling not so much so, but once again, in a Fortune 100 company that I've experienced, there are layers of very competent people and you tend to allow them to do their job so that you're not going to be micromanaging. I think both these gentlemen are innocent, completely, and I think that Andy Fastow was involved in deceit, fraud, and you name it, he was doing it.

You know, he was getting the company to guarantee things that they never should have done. Supposedly there were independent activities but it kept going back to Enron to guarantee it. They would take a contract--a 20 or 30-year contract--and take all the profits the first year. It was unbelievable what Fastow was doing.

CONAN: And he's pleaded guilty to some of these shenanigans, Malcolm Salter…

JOHN: Well, you know, I was going to ask, what's happened to him? He's out of the headlines. Has he been sentenced or what?

Prof. SALTER: Oh, sure. He plea-bargained and he's got 10 years to serve. He's got 10 years--10 years to serve. With respect to Skilling and Lay, the courts will decide whether they're innocent or not. The one thing that I can say from my research, is they were terrible managers, really awful managers.

JOHN: Yeah, but, they were basically absentee managers, meaning intellectually. But what about the--I'm glad that you said that because I have another question to ask you, which is, what about--we all rely on these big accounting firms and it looked like they were out on a holiday as well, allowing all this stuff to go on. Do you agree with that?

Prof. SALTER: Well, yes, to a large extent. By the way, there was a lot of criticisms within Arthur Anderson, both within the Houston office and more elsewhere, in Chicago--about the sort of the safety and the security and the legality of some of these transactions. Most of that never really got to the audit committee, I have to say.

When you are getting a million dollars a week in fees, you might look at things through rose-colored glasses.

CONAN: Yeah, that glass might always look half full.

Prof. SALTER: Yes.

CONAN: Our guest is Malcolm Salter. He's a professor at Harvard Business School and his upcoming book is, Innovation Corrupted: The Origins and Legacy of Enron's Collapse. It's coming from Harvard University Press. He's with us today from the studios of our member station in Boston, WGBH--or one of our member stations in Boston. And we're talking about the legacy the collapse of Enron.

You're listening to TALK OF THE NATION from NPR News.

And let's get William(ph) on the line. William calling from Portland, Oregon.

WILLIAM (Caller): Yes, my question is--you know, I'm a small business owner and I, I have a hard time to trust now, corporations who I used to do business, very open, with--honestly and expect them to be very honest, come from. And now it's getting really hard for me to trust corporations. I cannot trust these people anymore. I cannot see it and then say, oh yeah, you are very trustful person. I can believe on you, I can believe in the product you sell.

CONAN: Mm-hmm.

WILLIAM: I can believe that I can invest in your company. Because I look at this and--what happened if you also are one of those many, many people that call their self honest people and (intelligible) and worry and I can be the high society of our country and then we find out it's not. That's what I am--it make me hard to continue make business now.

CONAN: Okay, William. Thanks very much, appreciate it.

Malcolm Salter, broadly speaking, William's response--a lot of people had that, including a lot of investors.

Prof. SALTER: Well, I think it's a, a very powerful and emotional statement and I think it's very important. Don't forget, all business is based on trust. And a lot of the most important businesses in the land is done in a handshake. And without trust, all of the relations between participants in a firm, in a corporation, just fall apart--including between, obviously, the corporation and its investors. Here, what's so interesting about this case, is there may or may not be a legal breach. But for sure, there was a moral breach. And there was a moral breach because it was social injury, to the employees and to the shareholders.

This collapse, by the way, cost the owners over $60 billion. Which, just to put this in perspective, is more than the first phase of Iraq II. So, so this moral breach--what I mean by the moral breach is a breach in the principles underlying the standards of fiduciary duty. And I am very sympathetic with the view of--which is really one of the reasons I'm writing a book. Because in a sense, this book is not only about the folks down in the Houston courtroom, but this is a book about us. Because many of us who are involved in the business community, have been touched by many of the same pressures that the executives in Enron have been touched by. Many of us live day by day in the penumbra between, you know, clear right-doing and clear wrong-doing--and have to have the ethical discipline to figure out what makes sense.

CONAN: Well…

Prof. SALTER: And so that's, I think William's onto an important point.

CONAN: And here's an email question from April in New York City, that follows right on. (Reading) What was going on with the environment which Enron operated in, that allowed this deviate behavior to become normalized? Was it the business climate of the 90s, that was more focused on the bottom line than ethics? Or does your guest think that Enron is a special case? In other words, is this an extreme example of something that happens in other corporations, or did they operate in a totally different way from the rest of the community?

Prof. SALTER: Both, I think is the answer. This is the perfect storm. When you begin to talk about overconfidence, reckless gambling, perverse incentives, the culture of deceit, ethical drift, flawed governance, collusion--there's a lot of stuff in this story, you know, where it all, Neal, where it all comes together.

But I also, I also think April raises an interesting point. What else was sort of, you know, in the wind at that, at that time? It's hard for me to be a cultural anthropologist so soon, so close to the millennium. But there were, these were very go-go years. There were a lot of young companies with no earnings and having incredible market caps at the time and maybe there was a sense of, if them, why not us.

This was Texas, which is an incredible place to be. In my research, I've been down there. This is, there's, the optimism and the expansiveness of the wild-catting culture, is certainly, I think, a part of that as well.

So I think it's both. I think there's some cultural determinates. I think there's some temporal determinates, and I also thing there's a perfect storm.

CONAN: And again, given the regulations that have changed; given the changed economic conditions; the changed climate; do you think that we have protected ourselves against future Enrons?

Prof. SALTER: No. I think that there are some, I think that there are some things that we have to talk to. We have to talk about Board oversight. We have to talk about, we have to talk about perverse incentives. This is the technical aspect of running a corporation. The main thing we have to talk about is ethical discipline. And that's not going to come from the courts, and that's not going to come from the legislature. That's going to come from people like you and me and all of us talking about, how do you find the borderline? What's comfortable for you, in terms of pushing the frontier, between what works and what doesn't work, from an ethical and moral point of view.

Keep in mind why this is so--why this is so exciting and so troubling, is that a lot of the things that this corporation was doing, was beyond the law. There was no law that dealt with it, in dealing with financial transactions in particular.

CONAN: Malcolm Salter, thanks very much, today. Appreciate your time.

Prof. SALTER: Yeah, my pleasure.

CONAN: Malcolm Salter, the James J. Hill professor at Harvard Business School. His forthcoming book is, Innovation Corrupted. He joined us from WGBH in Boston.

When we get back from the break, political junkie Ken Rudin joins us. Also the new Democratic nominee for Senate in the state of Pennsylvania, Bob Casey.

I'm Neal Conan. It's TALK OF THE NATION from NPR News.

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