Regarding the topic of “unregulated capital markets”, here is another good history lesson – that has yet to be resolved. http://bit.ly/4jj9KN

You raise some interesting questions. Generally I feel like the drive for “quarterly earnings” on Wall Street, and compensation based on such, is the biggest evil. When millions of dollars of bonus money ride on quarterly performance, it’s no wonder things like Enron happen.

What if the board of directors started giving CEO’s their bonus’ based on some fraction of the trailing ten year stock price from when the CEO leaves the company (as opposed to current stock price). The argument is always that no “good” CEO will take that job because they don’t have control – but I don’t buy it.

I’m not saying it’s the right answer, but my point is that incentive drives focus on performance. You would probably see a shift to CEO’s that actually build companies for long term health, good succession plans, and a solid well trained team that takes the company into the next decade.

Just a thought…

Ahh……the beauty of white collar crime.

Going beyond Skilling, let’s not forget the most important lesson learned from Enron – greed will prevail in unregulated capitalistic markets. Generally speaking, current executive compensation policies demand managers to outperform themselves either quarterly or annually. A few bad quarters or years may be forgiven, but eventually investors will lose confidence and managers will be replaced. In Enron’s case – Skilling, Lay, and Fastow used their political leverage to change legislation in their favor. These changes allowed the firm to continue unrealistic growth via new markets and accounting practices. Because everyone who benefitted from these changes was getting their cut (executives, auditors, legislators, political parties, and investors) no one questioned the practices. It wasn’t until the firm had spiraled so far out of control that questions were ever raised. Greed fueled the success and decline of Enron. This example is not unique – though the severity may be – and leads me to question the definition of a successful company.

Is our measure of a successful business simply monetary? I fully understand (I think) the objective of any firm is to turn a profit. It would be difficult to raise capital on the promise of a doubtful return. What is the relationship between investor confidence and sustainable business? If a business does not grow, does it mean it is not successful? Should growth even be in the definition of success? Would it ever be possible to get investors to measure the success of a firm by other means than fiscal?