Can Ken Lay make a comeback?

Can Ken Lay make a comeback?

Can Ken Lay make a comeback?

Moneybox
Commentary about business and finance.
Sept. 19 2002 5:04 PM

The Redemption of Swine

Can Ken Lay make a comeback?

Kenneth Lay, Bernard Ebbers, and the other corporate scandal scoundrels don't dare show their faces in public these days. Paraded in handcuffs, disparaged daily by politicians, they have come to symbolize all that is wrong with America. It seems impossible that any of these wretches will ever be anything more than scum.

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But they will.

American history is all second acts. All disgrace is temporary. Sexual scandal (Dick Morris, Marv Albert) and political crime (Richard Nixon, Charles Colson) are forgiven; so, too, corporate wrongdoing is not necessarily a permanent stain. "There is a natural cycle in American scandal culture today—investigation, vilification, contrition, and rehabilitation," said Chris Lehane, one of Al Gore's media advisers.

Today's disgraced CEOs will need to imitate Michael Milken. When he was nailed and jailed, Milken was as loathed as Lay and Dennis Kozlowski are today. But Milken has become a corporate phoenix. The former billionaire "junk bond king" was indicted on 98 counts of conspiring to engage in insider trading, arranging illegal takeovers, and defrauding customers. Though he insists on his innocence on most counts, he admitted to five violations and in 1990 was sentenced to 10 years in prison, forced to pay $200 million in fines, and barred from ever working in the securities industry again. He served 22 months in prison.

Milken's image as a financial market pioneer eclipsed that of ex-con. He taught finance classes at UCLA following his release from federal custody. His record of large philanthropic contributions and basically intact bank account meant charities overlooked his indiscretions. Before he was released from prison, nearly 200 nonprofits approached the gilded con. Milken is reportedly worth nearly $800 million, which has helped keep his Rolodex and schedule full. Today he is the chairman of a cancer charity (he is a survivor of prostate cancer), a best-selling cookbook author, chairman of the Milken Family Foundation, and chairman of the Milken Institute, an economic think tank.

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So who among our current lineup of accused culprits can emerge, Milken-style, to the warm accolades of former critics?

The newly busted CEOs need good attorneys, spin doctors, and the humility to lie low or the guts to face pensioners and bad press without whining. It helps to have a history of philanthropy and a reputation as a business trailblazer. And it helps most of all to keep enough money after your fall to buy back goodwill.

Kenneth Lay is an obvious front-runner for redemption. Enron, though eventually riddled with self-dealing and accounting lies, was a revolutionary company, and Lay retains some grudging respect for his visionary ideas. Lay has declared his innocence repeatedly and makes a not entirely unconvincing case that he was tricked by underlings Jeffrey Skilling and Andrew Fastow. Even Sherron Watkins, the Enron whistle-blower, believes Lay was duped, and many former Enron employees have kept a soft spot for the affable Lay.

Lay has a philanthropic record that could help him, especially in Texas. Lay donated over $2.5 million to more than 250 organizations through his family's foundation, and he had Enron give 1 percent of profits to mostly Houston-based charities. His records of giving and enterprise have convinced former Texas Gov. Anne Richards of Lay's "stand-up" character, even after Enron's implosion. Lay is charismatic, a great speaker, a guy who wins friends easily. A little time in the pen or out of the spotlight—with the added humility that would bring—might even help his comeback.

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Like Lay, former WorldCom CEO Bernie Ebbers has a chance at redemption. He was a pioneer in creating a telecom empire, and he has hometown support. Ebbers raised record sums of money for Mississippi College, arranged scholarships for local children, aided local businesses, gave to churches, helped neighbors become millionaires through WorldCom stock, and put his adopted town on the map. He, too, may be able to shunt blame for the $7 billion accounting scam onto deputies and claim to be a dupe. He has been humbled himself. The largest individual shareholder of WorldCom, Ebbers has seen his personal fortune plunge in value, and he is as yet free of criminal charges, unlike two WorldCom executives.

Martha Stewart, too, should get another chance. While not under investigation for large-scale accounting fraud, Martha Stewart has come to symbolize greed and bad behavior. Possible insider trading, a shareholder lawsuit, and a plunge in company stock will not stop the Queen of Craftiness. She remains enormously rich, and her business still needs her. She may not have legendary affability, but she still has fans. Like Milken, Stewart will always be in demand for her business genius. And like him, she might choose to deploy some of her cash for good works that will polish her reputation.

Not everyone will fare so well. The guys who actually jiggered the accounting at Enron, WorldCom, and elsewhere may be beyond help. Enron's Jeffrey Skilling has been so unrepentant and his congressional testimony so seemingly duplicitous that future sympathy may be impossible. The bad acts by Enron's Andrew Fastow and WorldCom's Scott Sullivan may be too big to be forgiven. Moreover, neither Fastow nor Sullivan has expressed any regret for what has happened to their companies, let alone admitted guilt. At least Skilling felt bad for Enron employees and investors. None of the numbers-cookers were credited with the bold risks taken by companies in their media darling days.

It's particularly hard to imagine how Tyco's Kozlowski will ever get a second chance. Indicted for sales-tax evasion and now "enterprise corruption," a Mafioso-style charge of racketeering involving stock fraud and falsified expense accounts, he could face 25 years behind bars. It is the lesser charge of tax evasion for imported art that is likely to be his undoing with the American public. Kozlowski is the son of a cop. He should have known better than to monkey around with fancy French paintings. Kozlowski's comeback, if it happens, will be quiet and private. Disgraced S&L executive Charles Keating is living well in Phoenix and working with an investment group in Belize. That's the best Kozlowski can hope for.

So in 10, perhaps even five years, expect to see Ebbers teaching accounting to disillusioned youth, Ken Lay and Charles Colson praying together on Larry King, and Kozlowski guiding an iffy company based in the Caymans.