Markkula Center of Applied Ethics

Enron: What Ever Happened to Going Down With the Ship?

By Miriam Schulman
March, 2002

The Senate Commerce Committee Hearings finally found the right metaphor for Enron's fate when Chairman Byron Dorgan (D-ND) compared the company to the Titanic.

"In the Titanic," he said, "the captain went down with the ship. And Enron looks to me like the captain first gave himself and his friends a bonus, then lowered himself and the top folks down the lifeboat and then hollered up and said, 'By the way, everything is going to be just fine.'"

But there is, in the Titanic cast of characters, a good analog for the Enron leadership. While the captain, the first officer, and the Titanic's designer did go down with the ship, there was one honcho whose behavior was more like the Enron executives': J. Bruce Ismay, director of the White Star Line, which built and ran the Titanic.

Ismay was a passenger on that fateful voyage, and some said he encouraged the high speeds that contributed to the collision with the iceberg. Yet he hopped into a lifeboat early on in the disaster. Shades of former Enron CEO Jeffrey Skilling, and Enron Chairman and former CEO Kenneth Lay.

At the same time as these gentlemen were shouldering their way into the lifeboats, they were interfering with the evacuation of their workers. At this week's hearing, Senator Barbara Boxer played a videotape from a 1999 employee meeting where Skilling smiles and nods at the suggestion that employees put all their 401(k) retirement money into Enron stock.

That was certainly not Skilling's own strategy. He sold 39 percent of his holdings, or $67 million worth of his stock, before the company disclosed its financial troubles.

Lay engaged in similar self-protection. Last September, he conducted an e-mail forum with employees touting the company's stock option plan and urging them to buy more shares. Then, in October, Enron locked down all assets in the plan for almost three weeks during which period employees were not allowed to sell their shares.

At the same time, the company disclosed losses and charges against equity, touching off the free fall in stock prices that eventually led to the stock's delisting by the New York Stock Exchange. By then, Lay had earned more than $146 million in options trades.

Accept for a moment the claim by top leadership at Enron that they did not know about the accounting practices that led to the company's downfall-an assumption that, admittedly, strains credulity. But, for the purposes of argument, let's say they had no insider information that led them to dump stock.

Even if that proves to be true, isn't there something wrong with corporate leaders profiting when a company fails, especially while the rank and file and ordinary investors get nothing? What does it mean to be the chief executive officer or the chairman of the board if not that you take responsibility for the company's direction? If the organization goes under--whether through honest mistakes or illegal activity--aren't you supposed to be on the bridge until the bitter end, hollering, "Women and children first"?

In the case of Enron's demise--unless legal action reverses the inequity--the people most responsible for the disaster landed on their feet. The hapless workers and ordinary investors took the hit. As Steve Berman, an attorney representing employee plaintiffs in a class action suit against Enron, described his clients: "These people weren't Wall Street risk-takers. These were lunch-pail men and women who went to work every morning, putting a little away every month for retirement, or to finance a child's education. Suddenly, their savings vanished."

In his testimony before the Commerce Committee, Skilling allowed as he felt real bad about the workers' losses. "I don't know what to say to the employees," was how he put it. But he also has not donated any of his own earnings to the employees' fund, citing the need to preserve his money for the resolution of pending lawsuits.

The behavior of Enron executives toward their workers and investors seems eerily similar to Ismay's own description of his actions the night the Titanic went down. He told a Senate hearing on the disaster that once he abandoned ship, he never looked back: "I was sitting with my back to the ship. I was rowing all the time I was in the boat. We were pulling away."

Miriam Schulman is Director of Communications, Markkula Center for Applied Ethics, Santa Clara University

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