Give it back

William F. Buckley
Posted: Jan 27, 2002 12:00 AM
Years ago I passed along (and The Wall Street Journal recently picked up) the aphorism of a Viennese intellectual and colleague in the early days of National Review magazine. I forget what precipitated the crack, but Willi Schlamm said disconsolately after putting down the day's paper, "The trouble with communism is communism. The trouble with capitalism is capitalists."

To believe that capitalists will behave honorably just because they are engaged in capitalism is akin to believing that no priest will engage in pedophilia simply because he is a priest. Our godfather Adam Smith somewhere remarked that the view of more than two businessmen talking together in a corner justifies the suspicion that they are discussing devices in restraint of trade.

In the early days of the Enron story, one could say that there was no evidence there of criminal activity, and indeed it is fair to reiterate that when heavy stockholders sell shares in their company, they are doing so openly, so long as they register their sales with the Securities and Exchange Commission, which in the case of the Enron Seven, was done. But we learn that the incidence of such insider sales was abnormal.

The Chicago Tribune cites the sale of shares by insiders in the case of Dynegy Inc., which is a Houston-based energy company that was the principal rival of Enron. They had nine instances of company shares sold. The Enron people had at least 64. It is fair to say that the Enron people were perhaps top-heavier in stock than the Dynegy people and therefore under greater pressure to diversify. But now we know that former chairman Kenneth Lay was predicting in company mailings an upturn in the stock while selling some of his own.

What we do not know is that there was guile in the situation, though day by day the perspective appears to incriminate. We have a greater destruction of company records than is apparently justified. An accountant for Arthur Andersen has refused to answer questions from a congressional committee unless he is given immunity from collateral prosecution.

It is hard for laymen to understand just what is being concealed that required so comprehensive an act of shredding. If, after April 1912, the firm that built the Titanic had ordered destroyed the bales of designs that guided the ship's construction, one would nod one's head in understanding. But Enron's financial records are easily documented by reconstruction, so that one understandably wonders whether the idea was to destroy one or two incriminating internal memos, on the order of those of the tobacco executives who decades ago privately acknowledged the danger of smoking, but not knowing exactly where the memos were filed, ordered whole acres of material tossed away.

Whatever the management did that was illegal, there is no doubt that their behavior was inconsiderate, though hardly justifying such a tragedy as the suicide of former Enron vice chairman J. Clifford Baxter. What will happen when the lawsuits against them come to term? The Wall Street Journal reports that Enron carried about $300 million in directors-and-officers insurance. But such insurance policies aren't absolute guarantees of protection. Robert Hartwig, who is chief economist at the Insurance Information Institute, says that "in general, material misrepresentation is grounds for nonpayment or at least dispute of a claim for payment." Economist Lawrence Kudlow reports that it is not yet known what kind of misconduct provisions the Enron policies had.

But leave aside the question of monies recapturable by lawsuit. Eighteen top officers and directors of Enron executed 64-plus sales of the company's stock in 2001. Seven were responsible for 91 percent of all sales by people defined as insiders. The proposal here is that these seven men simply return the money they made to the company, if possible directing its routing as a contribution to the 401(k) retirement funds that evaporated in the meltdown. We are talking about $130 million. The largest sums went to former CEO Jeffrey Skilling and to former chairman Kenneth Lay.

It would be especially heartening if the offerings were made before any consolidated investigation made likely successful criminal prosecution. A gesture of the kind could detoxify much of what happened. A $90 billion company can go down for reasons that don't incriminate management. But when simultaneously management prospers, a transcendent moral question arises, and this has happened in the case of capitalism vs. capitalists.