The fallout from the Enron trial continues. The case was so big, the malfeasance so horrifying in its depth and pathology, that one suspects the fallout will be around for some time. It resulted in Sarbanes-Oxley but there is a question of whether the case has broader implications for criminal law and corporate governance.

Russell Powell from Seattle University School of Law has some interesting insights into this in his paper The Enron Trial Drama: A New Case for Stakeholder Theory.

Powell reviewed all public statements made by Enron jurors between May 25 and July 9, 2006. Using LexisNexis and Google, he searched for each juror, looking for articles or pages containing their names and Enron. He identified 90 distinct reported statements during this period. He then organized their statements into such areas as respect for defendants, bad character of defendants, witnesses not coerced, what defendants knew or should have known, the verdict based on careful review of the evidence, witness testimony weighted according to believability, complex finance and accounting issues, concern for harm to employees and the community, and hopes that the outcome would act as a deterrent.

What he found was that most common type of statement noted the bad character of Ken Lay and Jeff Skilling, or both. This included references to their greed, controlling nature, and"disgraceful" conduct. The second most common type of statement indicated concern for the tremendous harm to innocents: employees, 401(k) holders, investors, and family members.

All this raises some important issues, says Powell.

"The jurors' statements emphasizing the scope of the harm, the innocence of the victims, and the special consideration deserved by employees raises a number of interesting questions. Did the jury consider these factors in reaching a verdict? Are employees presumed to be owed a special duty by management? Even if the jury scrupulously obeyed instructions, was it possible for them to not be influenced by these concerns? We cannot know for certain whether the scope of harm influenced the outcome of the trial, but the fact that it is mentioned by jurors at all indicates that it played some role in their deliberation process even though they never specifically addressed it in the group. Their statements regarding duties owed to employees are perhaps more telling. One juror mentioned that, as a manager, she believes that Lay and Skilling had the same kind of duty to employees that she does: '[Managers] are always accountable for [the] treatment of subordinates and . . . employees at Enron were entitled to 'the same thing' from Lay. They didn't get it, which is why he is going to jail.'

"This is not a fiduciary or other legal duty, but it does imply an assumed obligation owed to employees, at least in the minds of some jury members."

And that, says Powell, has enormous implications. If jurors focus on stakeholders like employees, it might play a role in civil fiduciary duty suits even when the only factual questions concern duties owed to shareholders. Officers and directors who want to avoid personal liability for alleged duty violations may choose to consider impacts on corporate stakeholders, especially employees.

And for managers and directors, it means they have to think of corporate governance extending beyond shareholders. If they fail to consider the interests of employees, pension plan participants, and local communities, it's now more likely to increase the likelihood of their liability for bad behavior.


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