The Enron Tea Party

The revolutionary thing about the Enron verdicts – on the scale of the Boston Tea Party – was that the jurors held two C-suite occupants to the same standards of accountability that apply to anyone else. They rejected the Skilling and Lay’s didn’t-know, didn’t-notice, can’t- remember line of defense because they knew it wouldn’t work in their own jobs. As juror Freddy Delgado, an elementary school principal, put it:

I can’t say that I don’t know what my teachers are doing in the classroom. I am still responsible if a child gets lost. So I would say that to say you didn’t know what was going on in your own company was not the right thing.

The jurors included two engineers, a personnel manager, a dental hygienist, a county court clerk and a dairy farmer, among others. Skilling and Lay may have felt they weren’t being tried by a jury of their “peers,” and in a sense they weren’t. The class and wealth gap between the defendants (at least before they started forking out millions for their defense) was big enough to hold a stack of a 100 million one-dollar bills. But that’s just the point: The jurors thought the big guys should be as knowledgeable about their jobs as a humble hygienist or clerk.

This is not how things ordinarily work in corporate America. Take the case of Home Depot’s CEO, Robert Nardelli. His board of directors has paid him $245 million in the five years he’s worked for the company – that’s $45 million a year. But in the same five years, his company’s stock has fallen by 12 percent while that of its major competitor, Lowe’s, has risen by 173 percent. Similarly, Verizon’s CEO has been rewarded with huge pay boosts while his company’s stock fell. As any business reporter could tell you, executive pay has been “de-linked” from performance.

Now suppose you’re the woman who cleans Mr. Nardelli’s office at night, and you start cutting corners – leaving dust on the desk, mud-tracks on the carpet, and greasy streaks on the sink of his personal executive bathroom. Can you expect to be rewarded for this negligence by a pay increase – say, all the way up to $8.50 an hour? No, in any ordinary line of employment, declining performance gets you de-linked from your job.

American corporations, meaning pretty much the American economy, are ruled by a kind of royalty akin to King George III, at whom the tea-dumping was directed. They live in a bubble of privilege, generally exempted from scrutiny until, as at Enron, they go wilding and suck their companies dry. Their pay is set by their true class peers, the CEOs who populate boards of directors, and these fellow know that rising pay for one CEO lifts all yachts, for the simple reason that CEO pay is often based on a survey of other CEOs’ pay. There is no limit, in other words, to their plunderings.

So what was at stake in the Enron trial was not just criminal justice, but democracy itself. Call it the first outbreak of the next American revolution – against our overfed, unappointed, corporate royalty.

Comments

[Hattie]

Mr. Nardelli ought to be told that the newish Home Depot here in Hilo, Hawaii, is crappy. No one knows where anything is. Employees can't answer your questions because they are too busy stacking shelves. Or they stand outdoors blocking the entrance, smoking or snapping gum. When you ask where to pay or how to work the damn automatic checkout, they stop talking on the phone to their friends for a moment so they can impatiently point you to where you should go. If anything bothers you, it's your fault and you get that exasperated look. You are given to know that your presence in the store is interfering with employee activities, which involve a lot of hanging out.
The place was good when it opened, but now nothing is run as it should be there, since the trainers left.
I don't really blame these people,they are young and unused to this sort of work and probably not being paid much, but surely when you're putting out a lot of money for goods, you'd like a little helpfulness and courtesy. They really need better training and supervision so they can do a good job.
When this enterprise goes belly-up, it will be considered the fault of the workers, not of their slipshod bosses, too busy floating around on their yachts to mind the store. This is a disaster, because Home Depot has always had such a good reputation for service. Not here.
We have gone back to Ace Hardware and other suppliers, because they are so much nicer, and we can get most of what we need from them.
When that blast of red from the Home Depot sign disappears from the modest Hilo skyline, I will not weep.

[Erox]

Ya know, I like the way you worked that comparison in to a new revolution. Brilliant.

[Paul -V-]

I wish I could agree with you, but we've got a long way to go before these thugs are held accountable for what they did.

If a poor man robs a 7-11 he does hard time, not Club Fed time.

[Laurie]

If the courts based severity of sentencing on the intergenerational impact of crimes, these princes would be de-linked from their heartbeats atop the Enron sign in the public square.

[Jason Gooljar]

As a Billionare for Bush I'm sorry to see brother Lay and Skilling go down...

[Daniel]

Though this is hardly the main point of this post, it's important to realise that the reason that CEOs get pay increases is to encourage their employees to work harder. This sounds stupid, but can be backed up by research (which I'm too lazy to look for right now). Essentially, people are more encouraged to climb the corporate ladder if there is more money at the top. In order to climb the ladder, they'll feel they have to become more productive. Thus, CEO pay increases lead to increased productivity from the employees (presumably dwarfing the CEO pay rise).

Thanks,
Dan

[John]

I am not about to defend CEO compensation, but there is a lot more to measuring performance than the stock price. Very simply, CEO's or anyone else selling their labor are worth...what they can get.
As for Lay and Skilling, they cheated. Will they pay? Lets wait until September when they actually get sentenced. My bet is they get off easy. Lay will do as J.R. Ewing used to put it, "call in a few markers." In this case the markers may lead all the way to the White House and President Bush values loyalty above all else. We may very well see whether crime does indeed pay...handsomely.
59 million Americans voted for the current administration and, as a result, we should all bend over and take it without complaint. But not without reflection.

[Hattie]

Dan: am I being merely obvious when I say a major incentive in getting good work out of people is paying them better rather than paying someone else better?

[Morton]

regarding executive pay:

"It seems like folks want to make sure the wealthy are taken care of, just in case they happen to get there, then their cash will be safe.

Wakeup call - You probably won't get there."
-post on the forum

First of all, Hattie I think you and Jim Slattery are sliding dangerously close to pointing out the blindingly obvious. In fact, I should warn both of you; you may have stepped over the line.

Second, have you at all considered the years of toil and expense that have gone into the curriculums, research and studies for today's MBA schools that are indeed the very cornucopia spewing forth the bountiful harvest of modern management theories and ideas not the least of which includes the often cited and most revered "ludicrous reward theory"?

Thirdly, I implore all of you to reconsider this method of inquiry. And if it helps read this article by Matthew Stewart that appears in June's Atlantic Monthly:
http://www.susanohanian.org/show_commentary.php?id=390

[Ryan]

Revolution, eh? I called it first.

[Boston Tea Party Historical Society]

Nice article, but the Boston Tea Party was not about revolution. It was about about John Hancock's smuggling profits being udercut by the East India Tea Company...

[Ron Davison]

Barbara,

I'm a little chagrined. I was checking google to see whether my posting had registered and I find that you basically wrote my post about 8 months earlier. Very impressive. Thanks!