The Enron Trial Drama: A New Case for Stakeholder Theory

Abstract

This article analyzes the trial of Jeffrey Skilling and Kenneth Lay, including an empirical analysis of jury comments made after the trial. The study indicates that the jury was influenced by the scope of the Enron collapse and its impact on employees, in particular. I argue that if juries (or judges) are influenced by the magnitude of harm caused by fraudulent, disloyal behavior, especially when it impacts large numbers of working and middle-class employees, it is likely that the same factors will impact the outcome of derivative suits claiming breaches in fiduciary duties brought against officers and perhaps even directors. If concern for employees and communities plays a role in deliberation of federal fraud charges, it may play a role in civil fiduciary duty suits even when the only factual question concerns duties owed to shareholders. Officers and directors who want to avoid personal liability for alleged duty violations may choose to consider impact on corporate stakeholders, especially employees. This appears consistent with stakeholder and related models for corporate governance advocating that corporate fiduciaries should be able to consider the interests of stakeholders other than shareholders in making business decisions.

Keywords: Enron, Enron trial, Corporations, Corporate governance, Fiduciary duties, Jeffrey Skilling, Kenneth Lay, Stakeholder

JEL Classification: P10