Paul Fiorelli, the director for the Center for Business Ethics and Social Responsibility at the Williams College of Business, discusses the recent Enron verdict.
Is the outcome of this trial fair in your view? For the two men involved, does the punishment fit the crimes?
First of all, we’re not quite sure what the punishment will be. Judge Sim Lake (the federal judge presiding over Ken Lay and Jeff Skilling’s case) will rule on their sentence during the week of Sept. 11. Legal commentators have said both Lay and Skilling could face between 20 and 30 years in prison. One way the federal system differs from state sentencing is states still have the concept of parole—getting significant time off for “good behavior.” It’s not uncommon for white collar criminals to serve only one third of their sentence, so the former CEO of Tyco, Dennis Kozlowski, might only serve 8.5 years of his 25-year New York jail sentence. The federal system no longer recognizes parole, and the inmates can only get 54 days a year “good time.” If Ken Lay is sentenced to 25 years in federal prison, he’ll do a minimum 21.25 years.
How will the outcome of this trial affect the business practices of other large companies? That is, now that they have seen that even the most wealthy and successful amongst them can fall so far from grace.
I think the business community has already seen a number of powerful CEOs convicted and serving serious jail time. These people include Bernie Ebber, CEO of Worldcom, sentenced to 25 years; John Rigas, CEO of Adelphia, sentenced to 25 years; and even Martha Stewart, sentenced to five months in prison for obstruction of justice. Depending upon the severity of the sentence, this will send a chilling message throughout the business community that money and power can not protect you if you break the law.
What can other large corporations do to protect themselves and establish themselves as trustworthy in the wake of such a scandal?
I just had an article published titled, “How to ‘Pump Up’ Your Organization’s Ethical Muscle Memory,” (Journal of Health Care Compliance, May-June 2006). In the article, I discussed the importance of companies establishing the appropriate ethical culture. Organizations have to set the tone (1) at the top, (2) at the middle and (3) at the bottom of the organization. When the entire company develops these “habits of virtue,” good behavior will be the norm and the bad actors will stick out like a sore thumb.