Tuesday, January 18, 2005

The Effect of White Collar Prosecutions

An article in the Christian Science Monitor (Jan. 18) posits that the run of criminal trials involving CEOs, including Dennis Kozlowski, Martha Stewart, and the Rigas family, has had an effect on how business leaders view their jobs and the legal system.  The article describes what it calls the "Enron Effect":

Experts say the trials already completed - and the jail sentences under way - have had a big impact on corporate behavior. Lawyers for white-collar defendants say that CEOs are now pressuring underlings to state earnings accurately. Thanks to Martha Stewart, executives are more aware of the dangers of lying to prosecutors. Corporate leaders also know that Congress now requires them to personally vouch for their companies' earnings statements. In short, greed hasn't disappeared, but the path to riches is more likely to follow the legal road map. "The government has largely accomplished its goal of changing corporate conduct in a major and significant way," says Kirby Behre, a former federal prosecutor who is now a partner at Paul, Hastings, Janofsky & Walker in Washington.

If there is an "Enron Effect," then how long it will last?  This country seems to have spasms of corporate wrongdoing, often tied to a specific industry, such as the S&L collapse, defense contractor abuses, and the insider trading cases in the 1980s.  The current focus on high-level executives such as former CEOs Ken Lay, Jeffrey Skilling, and Richard Scrushy--who were once considered exemplary corporate leaders--makes this era a bit different, perhaps.  If you've been around long enough, however, you wonder what the next round of corporate prosecutions will look like. (ph)

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