A Free-Market Energy Blog

On the Fall of Enron and Ken Lay: ‘Philosophic Fraud’ at an Errant Energy Company (and cap-and-trade, renewables forerunner)

By Robert Bradley Jr. -- September 10, 2009

[Editor note: This interview with Rob Bradley from the April 2006 issue of The New Individualist, published by The Atlas Society, is reproduced for two reasons: 1) the role of Lay and Enron in launching the global warming debate within the energy industry in the late 1980s and 1990s; 2) the role of Bradley during his 16 years at the company brought up by critics of the Institute for Energy Research/American Energy Alliance.]

TNI: Why should Objectivists, libertarians, and individualists take an interest in the collapse of Enron and particularly in the fall of Ken Lay?

Bradley: Enron will prove to be one of the most important episodes in the history of American business, and its story, from beginning to end, is inseparable from Ken Lay, its founder and long-time chairman. Thus, what people make of Enron—and what lessons they draw from it—will depend to a considerable degree on how they understand Lay.

As I’m sure you know, Enron has to date been blamed largely on free-market politicians, heartless corporate managers, and an egoistic chairman. In fact, as my book will show, Enron relied heavily on government favors, was run by postmodernist managers, and had as its chairman the kind of person Ayn Rand would have called “a second-hander.”

TNI: You have a long chapter near the beginning of your book that shows how Ayn Rand’s philosophy applies to Enron. Where did this germinate?

Bradley: Funny you should ask, Roger [Donway]! It was your piece [in Navigator] that confirmed for me the value of Objectivism in analyzing Enron. When Enron was sinking and Great Man Ken Lay was melting, I thought, “Wow! This is right out of an Ayn Rand novel!” I was not familiar with The Objectivist Center at the time. But several months after the bankruptcy, I did a Google search and came across your article on Enron as a postmodern corporation. The article opened my eyes to the fact that the causes of Enron’s financial bankruptcy were at root philosophical.

Since that time, I have plunged into the Objectivist literature as it relates to business and developed the theme that whatever may or may not be prosecutable fraud, Enron’s leaders were certainly engaged in massive philosophic fraud—an attempt to cheat reality itself.

TNI: Could you please tell our readers something about your personal involvement with Enron and Ken Lay?

Bradley: I was at Enron for just over sixteen years. I arrived about six months after Ken Lay did. And my last day was December 2, 2001, which was when the company declared bankruptcy and about 4,000 of us were laid off.

TNI: So, your time with the firm went back to the time that Ken Lay left Transco Energy Company and joined Enron’s predecessor company, Houston Natural Gas (HNG).

Bradley: What I joined, actually, was HNG/InterNorth, the result of a merger between Houston Natural Gas and InterNorth, a large natural gas company out of Omaha. Lay was the new CEO of HNG, and then InterNorth bought HNG. But Lay was really what InterNorth was seeking, so it was a reverse merger of sorts. Just months after I joined, the corporate name was changed to Enron.

TNI: How closely did you work with Ken Lay?

Bradley: For my last seven years at Enron, I was Ken’s speechwriter and, you might say, his think tank. When he received books or studies, he would send them to me for analysis. It was my job to keep up with industry developments, general economic trends, and academic trends, then try to think up new ideas for his speeches.

TNI: Were there that many speeches?

Bradley: There were a lot—too many, in retrospect! I remember he had five presentations at the World Economic Forum in Davos, in early 2001. He was that much in demand.

TNI: Was speechwriting your only job?

Bradley: No. I got involved in a number of regulatory matters, and, in that capacity, I was Enron’s libertarian. Ken Lay was involved in so many issues and took so many different sides on the issues, that he needed people around him with a variety of perspectives. If there was an issue where Enron needed the help of the Cato Institute or the Competitive Enterprise Institute, I got involved. On the other hand, if Enron needed the help of environmental organizations, there was a person at Enron who was in tune with the Left. This was a feature of Ken Lay and Enron’s “political capitalism,” or “rent-seeking”—to have the resources to get more intervention where it was needed or, at times, to roll back intervention where that was needed.

TNI : Did you ever challenge Enron over their reliance on government favor?

Bradley: I fought hard against the company’s ill-advised windpower investment, the unit that GE bought out of bankruptcy and is now part of their “ecoimagination” PR campaign. I also had “e-mail wars” with my counterpart who was a climate alarmist. I will cover all that in a fair way in my book. [Editor note: Bradley has reproduced some of those emails here.]

TNI: Enron’s forays into “political capitalism,” by which you mean “businesses seeking government favors,” bring us to the subject of your book. But you said Enron is the book’s climax. What comes earlier?

Bradley: Obviously, Ken Lay and others at Enron did not invent rent-seeking— that is, striving for profits by political means. So the first third of the book explains the theory and history of political capitalism, with a particular focus on the energy industry. The second third looks at American business history to show political capitalists in action. A major figure, as you can see from the book’s title, is Samuel Insull, an early leader in the electric utility industry. In the first third of the century, he was one of the most revered business leaders in the United States, and, in today’s dollars, a billionaire. But he was also a political capitalist, who fathered the public-utility regulation of the electric industry. Eventually, he overexpanded his utility empire and lost everything, although he avoided jail after “the trial of the century.”

The last third of the book zeroes in on the rise and fall of Enron and the post-Enron period, with particular emphasis on Ken Lay. [Editor note: The three sections of one the book have become three books, a trilogy, described here.]

TNI: Did you decide to write the book in order to find out what had happened to you?

Bradley: Actually, the book grew out of an Enron project. I was gathering material and conducting oral interviews for a rah-rah book on Enron. Something like: “The World’s Leading Company.” That was the corporate vision at the time—to become the world’s leading company—and the project was going to document that. There was also talk about writing a biography of Ken Lay as the Great Man. Daniel Yergin, author of The Prize and a great admirer of Ken, was contacted about writing something but declined.

So I was co-director of the Enron Oral History project, along with a business historian at the University of Houston, Joe Pratt. Well, when the collapse came, I found that I had a lot of information that could be used to write a history of the company—but a very different history than was originally envisioned. And this history would not only be different in its conclusions, but in its analytical approach.

TNI: Because you came to see Enron in philosophical perspective?

Bradley: Yes. And with all the other Enron books coming out, which were basically story telling, I knew I needed to wrap a worldview around the subject to really make sense of it. The exciting thing about the subject is that so much of the classical liberal worldview comes into play in a “live” situation. I just have to do it right. It has not been easy. [Bradley’s book, Capitalism at Work: Business, Government, and Energy, has been published.]

TNI: How have your ideas about classical liberalism or libertarianism changed during the course of research and writing your manuscript?

Bradley: Well, when I was at Enron, I would have described myself as a libertarian and Austrian-school economist. I had read The Fountainhead in high school, and it was a life-changer. It introduced me to individualism and capitalism, and it was from that Randian base that I got into free-market economics at college. When Enron began going down, I naturally found myself thinking again about Objectivism. Then I read your article in Navigator. So when I began working on my book, I found that the company had been based on the kinds of intellectual and moral frauds that Ayn Rand described. I had seen problems earlier, but I had had no idea of how deep the problems ran. Now, I did, and of course I started to wonder: How could this have happened? Looking at Ken Lay, I began to see a lot of the flaws exhibited by the tragic figures in Rand’s novels.

So, since the collapse of Enron, I have read Atlas Shrugged and immersed myself in the literature of Objectivism, thinking about what it means for good business practice and what that implies about Enron and Ken Lay. The same thinking got me to Adam Smith’s The Theory of Moral Sentiments and Samuel Smiles’ Self-Help. Between Smith, Smiles, and Rand, I found, the bad habits of Enron’s decision-makers had long been anticipated and explained!

TNI: Describe Ken Lay. Where did he come from, and what had he done before he became CEO of Houston Natural Gas?

Bradley: In some ways, Ken Lay is a Horatio Alger figure. He was born in 1942 and grew up in a poor farming community in rural Missouri. He didn’t even have indoor plumbing until he was practically a teenager, that sort of thing. But he did come from a very loving family, and the people around him were in similar economic circumstances. So, I don’t think he experienced any trauma—at least at the time. I think this issue of how far down he began—while it’s interesting—has received way too much emphasis. There was and is this constant characterization of Lay as coming from poverty—as if that made him a better person than CEOs who came from more affluent backgrounds.

I mention this because, looking back, it is a red flag: building up the charisma of the CEO and taking attention away from the fundamentals of the company. Jim Collins, a leading management consultant and strategist, in his book Good to Great, has emphasized that companies with charismatic CEOs actually underperform those that have more matter-of-fact, down-to-earth CEOs. It’s an insight you can also find in Atlas Shrugged.

Lay pursued his Ph.D. in economics at night school while he was working full-time in Houston for Humble Oil and Refining, a predecessor company to Exxon. He fulfilled his military obligation with the Navy from 1967 to 1970, at a desk job in Washington. He then worked for the Federal Power Commission, which regulated interstate gas pipeline companies and is now the Federal Energy Regulatory Commission. After that, he went to the Department of the Interior and worked on, among other things, Richard Nixon’s first major energy speech to Congress.

In 1974, Lay returned to the private sector and rose quickly through the ranks. He joined Florida Gas Company in Winter Park, Florida, as Director of Corporate Planning and ended up heading the company in 1980 when it became a division of Continental Group. In 1981, he went to Transco in Houston as president and chief operating officer. In 1984, HNG hired him away from Transco to be its CEO.

What’s interesting is that Lay really had no major setback in his long career, from the time he began selling newspapers as a young lad, through his stints in government, through his jobs at major companies. Dr. Lay, as he liked to be called, became the leading young executive in the industry. He was very smart, energetic, and driven, and a very high achiever. It carried over to Enron. He got to the point that he could not envision failure for Enron or himself. His deep religious conviction also played into this mindset, something that needs to be explored.

TNI: Was there any sign, early on, that Lay had a tendency to evade unpleasant facts? Surely, his superiors would have noticed.

Bradley: That’s a good question. Before Lay became Enron’s CEO, he always reported to someone. It was after he became Enron’s CEO that he made an instructive comment: “It’s a lot harder working for a CEO than being a CEO.” In retrospect, some of Lay’s old bosses were very good for him.

For instance, at the Florida Gas Company, where Ken worked from 1974 to 1981, he had a very strong boss named Selby Sullivan, who was very reality-focused and not interested in hype. Rand would have loved Sullivan. He was never satisfied. He worried and fussed a lot, but he got great results for the stockholders. In some ways he might have been too abrupt, and he and Lay butted heads in a way that Lay never experienced until his recent trial. But having a no-nonsense manager is what Lay needed.

Lay had a great number two man behind him at Enron before 1997, a man who was a tough taskmaster, like Sullivan.  Like Sullivan, too, he was an implicit Objectivist. This was Richard Kinder (pronounced KIN-der), a no-nonsense chief operating officer. Kinder had a couple of sayings in his Enron days: “Let’s make sure we’re not smoking our own dope” and “Let’s make sure we’re not drinking our own whiskey.” That says a lot about the way he approached things. By contrast, a close advisor of Lay’s, Irwin Stelzer, said that Ken was the only person he had ever met who was “always in spin mode.”

Kinder had expected to receive the title of CEO from Lay early in 1997. But for complicated reasons, Lay decided to stay on, and that precipitated Kinder’s exit. Kinder went on to form a company—Kinder Morgan, Inc.—which was described in Fortune as the anti-Enron. Kinder Morgan now has a valuation of over $20 billion, and Richard Kinder himself is a billionaire. [According to the latest Forbes 400, he is the 93rd richest American, worth $2.5 billion—RD.] Compare that to Ken Lay, who is or will be broke, and who is facing a long jail sentence.

TNI: “Of all the sad words . . .” But what did Lay actually do at HNG before the Skilling era? Granted Kinder was a good check. Did Lay take moves that were successful? Were his plans and programs reality-grounded?

Bradley: From mid-1984, when Ken Lay came over from Transco, through 1996, Enron weathered difficult markets and did, on the whole, quite well. There was a near-death experience in 1987, however, when some rogue oil traders were keeping two sets of books and racked up huge losses. Ken Lay, it turned out, ignored major warnings and failed to shut down the operation when he should have. (This became general knowledge after Enron’s bankruptcy, as a result of all the investigative journalism.) But when Richard Kinder was president and COO, the company was reality-grounded, nuts-and-bolts oriented. Kinder was a rabid incrementalist, by which I mean: he was always trying to get the operating divisions to do a little better on the revenue side and the cost side.

During the Kinder era, Enron created one new business—the trading of natural gas and electricity. This was Jeff Skilling’s major contribution, but one that required new regulation (called “mandatory open access”), whereby Enron’s marketers could use the pipelines and transmission facilities of other companies to get gas or power from production to market areas. But Enron’s other businesses, the pipelines, power plants, exploration and production, were about continuous improvement, or rabid incrementalism. With that strategy, the company did well overall.

TNI: What happened after Kinder left?

Bradley: Most of the horror stories that you hear about Enron occurred between 1997 and 2001, although some seeds had been planted before, particularly in the Skilling-led trading operation. When Kinder left, Lay chose Jeff Skilling as the new Chief Operating Officer. It was really Skilling’s company, starting in 1997, with Lay focusing on external matters.  This changeover empowered a lot of Skilling people that are in jail or facing jail: Andy Fastow and a dozen others.

TNI: Let’s talk about the externals first. How did Enron get into such esoteric fields as water and broadband? Was that Lay’s vision or Skilling’s?

Bradley: Well, it was part of the “revolution over incrementalism” model. I guess you could say that Skilling brought out the worst in Lay, and Lay brought out the worst in Skilling. The old Enron philosophy, as well as the Jim Collins view of good business management, is that sometimes there are opportunities for major change and completely new businesses, but the name of the game is really lots of small improvements to make the whole more successful. Certainly, when the market is giving you signals of losses or low profits, you shut down operation or make major changes. And you don’t invest in politically correct things like wind and solar, as Enron did, which really are not supported by consumer preference. Look at Kinder at Kinder Morgan, Charles Koch at Koch Industries, and Lee Raymond at ExxonMobil—three of America’s most proven CEOs.  They are reality grounded and avoid politics and publicity as much as they can.  They just “saw wood,” as John D. Rockefeller used to say.

Lay came to embrace a “revolution always” business philosophy, a perpetual search for the first-mover advantage. This comes out of Joseph Schumpeter’s notion of “creative destruction,” and Peter Drucker’s notion of “discontinuity.” In the early 1970s, Lay had used Drucker’s Age of Discontinuity when he taught nighttime graduate economic courses at George Washington University. So, he was very susceptible to the message of Drucker’s disciple Gary Hamel—in Competing for the Future, published in 1994—which proclaimed that the age of incrementalism was over. In essence, what Hamel said was: If you’re spending your time trying to cut costs a little here, and enhance revenue a little there, then you’re going to lose out to a competitor who revolutionizes the market.

Enter Jeff Skilling. He had a business model that, he believed, was so revolutionary it would transform Enron into the world’s leading company.

TNI: What happened?

Bradley: Well, the business model had some weaknesses, or at least special requirements, and the execution was lacking. Problems accumulated, and, instead of making mid-course corrections, and even shutting down whole businesses, the cover-up began, in order to help buoy the already-hyped stock price.

Normally, in business, mistakes are made, and they are indicated through the market’s verdict: low profits or losses. The market is a pretty darn objective mechanism for giving feedback, telling a business to expand here and contract there. Rather than face the music, Skilling and his lieutenants covered up the failures—confident that all they needed to do was bridge a gap, because Enron and Ken Lay were perceived to be infallible. Worse still, in retrospect, the cover-up was very good. The “smartest guys in the room” were very smart, motivated people who found short cuts, sometimes legal and sometimes illegal, to paper things over. But this created time bombs.

So, you have Skilling destroying the company from within while Ken Lay is forging a lot of friendships and giving a lot of speeches about how Enron is the great New Economy company. Of course, as his speechwriter, I was part of this story-telling, but like almost everyone I had no idea about how rotten things were getting at the core.

TNI : So Ken Lay was part of the cover-up, knowingly or unknowingly?

Bradley: That is the $64,000 question.  The trial failed to provide a clear answer, and I want to get to the bottom of it.

I can say this. If it hadn’t been for Ken Lay, courting all sorts of different constituencies—Republicans, Democrats, environmentalists, minorities, business leaders—the list goes on and on—there would have been a lot more scrutiny of Enron, and Skilling wouldn’t have been able to get away with what he did. It was Ken Lay’s smokescreen, his illusion-making, that caused the shock of Enron’s demise. When Enron finally imploded, it caught just about everyone by surprise.

TNI: Your description of Skilling differs from the one I read in The Smartest Guys in the Room, by the Fortune reporters Bethany McLean and Peter Elkind. Reading their book, one gets the impression that Skilling is an Objectivist-style businessman. He’s brusque, certainly, but he’s incredibly intelligent. He doesn’t care for social skills; he doesn’t like the adulation of yes-men and sycophants. And he is absolutely focused on the verdict of the market. They write: “The markets, he believed, were the ultimate judge of right and wrong.” What’s going on here?

Bradley: That is absolutely a mischaracterization. In fact, you might say it’s the typical mischaracterization of Ayn Rand carried over to Jeff Skilling. Skilling was no capitalist hero. Smith, Smiles, and Rand would have despised him. Skilling was an amoral pragmatist, a master corner-cutter who made deception a way of life at Enron. I would have to study more philosophy to say this confidently, but he might be closer to an ideal Nietzschean. Skilling made important contributions to energy-risk products, but first as a COO and then as CEO at Enron, he was toxic.

TNI: How, as F.A. Hayek might ask, did “the worst get on top”?

Bradley: Skilling had a lot of character flaws, and, from the beginning, people at Enron knew that he was a shady character. In his private life, there were red flags. But Skilling had presided over the highly profitable trading operation, although some of its success came from artificially accelerating earnings, which proved to be unsustainable.

Lay and others thought that Skilling was a brilliant businessman with the ultimate recipe for the new economy, so the end justified the means. Lay thought, “Skilling has the right business model, his personal flaws notwithstanding, and I can mentor him to correct his erratic side.” As it turned out, Skilling’s personal flaws transferred right over to the business side.

TNI : So Skilling was quite the opposite of an Objectivist hero.

Bradley: Yes, but there was a person who became CEO of the company in the last months who was influenced by Ayn Rand and who was reality-oriented. His name is Greg Whalley. He called Atlas Shrugged his favorite book during an interview that was published in what would be the last issue of the company magazine. Whalley was no wallflower. He ran roughshod over Lay and demoted Andy Fastow on the spot.  He was doing the right things as doom approached, but it was far too late.

So the Enron story has anti-Rand characters, who are the tragic figures, and Randian types, the implicit or explicit Objectivists, who turn out to be the heroes. From an Objectivist point of view, it seems to me, this makes the Enron saga very instructive.

TNI : Are there other ways in which Enron was “right out of an Ayn Rand novel”?

Bradley: Yes, I keep finding parallels as I write the story. I might have a section subtitled “Atlas Shrugged,” in which I describe how a number of Enron employees of ability “went on strike” when they were marginalized by Skilling and his team. Some left the company, others just passively took their paychecks. And, at the end, when Lay was convening emergency meetings, some of these formerly marginalized people—implicit Objectivists all—were shouting at Andy Fastow and telling Ken Lay to get real. I wasn’t there, but it sure sounds like it was right out of an Ayn Rand novel!

TNI: There are two great mysteries at the end of the Enron saga. Skilling was made CEO of Enron in February 2001 and resigned in August. According to The Smartest Guys in the Room, he actually started writing resignation letters in April, only two months after getting his long-desired promotion. When he did quit, Lay agreed to come back and take up the CEO post again.

Did Skilling quit because of how bad things were? If so, he must have known how bad things were when he ran the company as COO. Why, then, did he take the CEO post? And when Skilling resigned, against all urging, surely Lay must have suspected that something was terribly wrong. If so, why did he come back?

Bradley: For all practical purposes, Skilling had been running the company since 1997. At that time, Enron was doing well, but it faced a lot of challenges, so Skilling was under a great deal of pressure to meet expected earnings growth. Skilling saw a reality he did not like almost immediately and began the cover-up. By the time Skilling became CEO in 2001, the company was infested with problems. Despite that, Skilling seems to have started off his CEO tenure fairly confidently. I don’t quite know why, but obviously that confidence left him pretty quickly. He knew there were major problems; he knew that Enron was covering them up; he knew that there was going to be a Judgment Day. So, his strategy became: “How do I get out of this?” “How do I cash out and leave the problems for others to deal with without tanking the company?”

When Skilling quit, Ken Lay then took back the CEO title in addition to his chairman’s title. The employees gave him a standing ovation, and Ken was his usual, supremely confident self. I don’t think he fully grasped the magnitude of the problems. Partly, perhaps, he just didn’t know the facts. But partly, I believe, Lay was not grounded in reality. He thought that the power of his persona, the power of prayer, as well as his friendships and all the connections he had cultivated over the years, could make Enron everyone’s favorite company again, and there wouldn’t be a Judgment Day. Obviously, this turned out to be tragically wrong.

TNI: We are talking today, of course, because of the trial of Ken Lay has just ended with his conviction. In the past, you’ve used the term “philosophical fraud” when talking about what went on at Enron, and you’ve refrained from pronouncing any legal judgment. But a court has now spoken and said that Ken Lay was guilty of prosecutable fraud. What is your reaction?

Bradley: The government seems to be saying that philosophical fraud at a public company is prosecutable fraud. It seems to be saying that filling out the right forms is not enough. Intent matters. If you are gaming the regulations with the intent of fooling investors, fooling external constituencies, that is prosecutable fraud.

TNI: That does seem to be the message. The New York Times wrote: “The argument of the prosecution, which the jury accepted, was that simply misleading investors was a crime.” Libertarians will want to think hard about that position.

Bradley: A lot of libertarians are already thinking about it, I’m sure: What should be prosecutable? I don’t know that there is a bright line. But what this decision means is that business executives are going to have to be reality-centered and avoid the temptation to play games.

TNI: But that raises the question: Are we going to make irrationality and sin into crimes? To do so takes us a long way down the road to Puritanism and Prohibitionism: If it’s not true, you can’t say it; if it’s not good, you can’t do it.

Bradley: Yes, that is a danger. But I think the shift to intention is basically healthy. I have the 1931 annual report from an Enron predecessor company, Houston Natural Gas. And unlike Enron’s last annual report, about 60 pages long, the old HNG annual report is four pages. There is not even an external opinion—this was pre-SEC. There are just internally generated numbers by the company. But if someone thinks the report is misleading, and there is consequent material damage, then there could be a suit and you could tell it to a judge and a jury. Of course, the process by which you arrived at the numbers is important. But in the end, it is a matter of intent. So, executives are going to have to demonstrate they have tried to be fair and realistic in their reporting.

TNI: If executives can be held to account by private suits, that seems fine. But I do worry about the criminalization of financial reporting. I think of a point Alan Greenspan made years ago in his article “The Assault on Integrity,” which is reprinted in Capitalism: The Unknown Ideal. The more that the government steps in and tells business, “You must fill out this form, and this form, and this form,” under penalty of law, the more it will deceive the people into thinking that everyone who fills out the forms can be trusted.

Bradley: Right. That is why intent is so important in fraud. Enron was a master at gaming GAAP—the Generally Accepted Accounting Principles—the highly prescriptive rulebook for accounting. It’s thousands of pages. If the government resorts to telling you what you can and can’t do in detail, then it invites gaming, where you technically comply with the regulations, but in terms of intent violate your obligation to properly represent the financial position of the company. So, if government regulators, in the wake of the Enron decision, come out with a big manual on how to be objective and realistic, that is not going to be useful. It’s the last thing you want. We need to leave it up to people’s discretion how they are going to present fairly the financial state of their company. But there has to be the principle of not misrepresenting the state of the company.

TNI: Inevitably, the journalistic stories and columns on Enron attribute the whole debacle to greed. Do you see that?

Bradley: Look at the end result. What’s so greedy about what has turned out to be a monumental lose-lose for most everyone? The “greedy” Enron principals have lost much of their wealth and are going to jail. If that is greed, it backfired badly. What happened at Enron was bad entrepreneurship and philosophic fraud. It was entirely contrary to the practices of the Smith-Smiles-Rand heroic entrepreneur.

TNI: We have an opportunity, which is very rare in the middle of criminal prosecutions, to hear from the defense. Typically, a defendant’s lawyer tells him to say nothing. But last December, Ken Lay spoke to the prestigious Houston Forum to offer his own view on what had happened. How did he see the events that overwhelmed him?

Bradley: Well, the brief answer is: He couldn’t see them—or wouldn’t see them.

Lay declared that “Enron was a strong, profitable, growing company even into the fourth quarter of 2001.” He then called on former employees to prove that “Enron was a real company, a substantial company, an honest company, a company that had a vision and values.” If we former employees would testify to this, he said, we would create “a wave of truth.”

I was in the audience for that speech, and I really felt sorry for Ken, realizing that this delusional narrative was going to be presented to a jury. So, a week later, I sent a confidential e-mail to his team, members of which I have worked with on some interviews for my book. Now that the trial is over, I’ll quote the key paragraph, which gives the essence of it.

The time has come for Ken to shed his delusions. He needs to think more realistically about what went wrong at Enron and to reflect on his own mentality during his last years and months at the company. He must be made to understand what the situation really was and what the situation really is. He should be compelled to ask: What did I do right, and what did I do wrong, in a business sense? Where was I negligent? And: Did I anything that might be construed as illegal? For Ken to finally distinguish the good, the bad, the negligent, and the possibly illegal could start a real wave of truth. I think the jury would believe him—or at least give him the benefit of the doubt.

I truly thought that Ken Lay had a chance to start over. Total candor would surely have won him some sympathy from the jury. Even if they had convicted him, it surely would not have been on all counts, and he could have gotten a lighter sentence. As it is, Lay may be put away for life! [Editor note: Lay (1942–2006) died before his sentencing, receiving what his faithful called “a pardon from God“.]

TNI: The Houston Forum subsequently had you speak as a counterpoint to Lay, a talk which was shown by C-SPAN in its American Perspectives series. The speech title was “Deconstructing Ken Lay.” Could you deconstruct him now for our readers?

Bradley: I addressed what I called “The Ken Lay Paradox,” which I described as: “How can a man so seemingly intelligent, well educated, and experienced; religious, moral, and law-abiding; kind, civic, and philanthropic—with long training as a top corporate manager—preside over the greatest business fraud and debacle in corporate history?”

Well, how? As I see it, Ken Lay was the quintessential second-hander. Perhaps because of his humble background, and the perennial failure of his father in business, he came to view himself as someone who was worthy only if others viewed him as worthy. That can be a greater motivator, and it can lead to great success and acclaim. But it leaves you with no inner resources to draw on if you publicly fail. Lay was not a self-centered person whose values came from deep within. His modus operandi was to be all things to all people. Without that, he was nothing. I think that was his tragedy at Enron, and it proved to be his tragedy at trial.

In his trial, he could not own up to the problems at Enron, to what he knew and when he knew it. He couldn’t own up to the problems created by Jeff Skilling, partly because he handpicked Skilling over Kinder and could not own up to that obvious failure. Instead, Lay joined Skilling (for whom candor probably was a losing option) in a cartel of deceit. They tried to say that Enron was a great company and the only thing that brought it down was criminality by Andy Fastow, skeptical short-sellers, and malicious journalists. In other words, Lay put the blame on others rather than blaming himself for bad business decisions and willful ignorance. The verdict that came back from the ordinary Americans who were members of the jury was a complete defeat for that strategy.

Why couldn’t Lay see that his company was in trouble back in the Skilling era and even after? Why couldn’t he see the guilty verdict coming? The explanation would be easy if we found out that he was reading Jacques Derrida and other postmodernists and that he really thought he could construct his own reality. But it’s not that easy.

When he found himself trapped by problems of his own making and of Skilling’s making, instead of taking a rational approach to escape the problems, he became a psychological postmodernist. Reality—expressed by the market in the case of Enron, and the jury in the case of trial—has exacted its revenge.  It’s a tragedy, but one from which we can draw many lessons.

And Objectivism, as my book will show in detail, helps us draw the principal lessons, because essentially they are just variants of a statement Ayn Rand wrote 50 years ago: “Reality is not to be wiped out, it will merely wipe out the wiper.”


  1. Andrew  

    Mom will love this. Emailed. Thanks Rob.


  2. C. Jeffery Small  

    Hi Robert:

    Excellent article. Because of the Objectivist orientation to your analysis, I thought it appropriate that I bring to the attention of you and your readers an initiative at my web site that analyzes the ramifications of the current call for National Service, culminating in a opportunity for the reader to make a Personal Declaration of Independence and demand the restoration of our lost constitutional rights. I hope that you find it interesting.

    C. Jeffery Small go-galt.org/Galt_Pledge/


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