Lessons from Enron: just say 'sorry'
A new crop of executives under fire are learning that cooperation may be their best strategy.
(Fortune Magazine) -- Sometimes it's good to be guilty. Just ask Andy Fastow: he pleaded guilty and worked to nail the other smart guys at Enron, and got a reduced six-year prison sentence. By contrast, Jeffrey Skilling, who has long proclaimed his innocence, seems likely to serve 24 years and four months behind bars.
So when David Kreinberg, the ex-chief financial officer at Comverse Technology (Charts), became the first executive swept up in the options backdating scandal to plead guilty to charges of conspiracy and securities fraud yesterday, it's not hard to imagine that Kreinberg took a good long look at the Enron sentencing before he called up his lawyer and started pointing fingers.
"The new buzzword for dealing with regulators is cooperation, cooperation, cooperation," says Scott Meyers, head of litigation at Levenfeld Pearlstein in Chicago. "The first person on the bus usually gets the best seat. If you're representing someone who is the first person to cooperate with authorities, you'll do better at the end of the day than those who have chosen to fight."
Some believe that a new era in white-collar crime has dawned, when it's better to cop a plea rather than fight for your innocence and reputation. It follows naturally from the corporate excess of the 1990s and a post-Sarbanes-Oxley-Spitzer world in which executives can be given multi-decade sentences behind bars. In this environment, extreme cooperation with authorities seems like a better deal, even though it can often mean sacrificing Constitutional rights and attorney-client privilege. As odd as it may seem, public corporate confessions seem to resonate in the same way as those from fallen politicians or celebrity rehab refugees.
In the backdating scandal, companies including UnitedHealth, Broadcom and McAfee, have already begun cooperating with authorities and paying penance via fines, financial restatements and the ouster of higher ups. Of course, the strategy may not work for everyone. As Meyers says, "People like to put a face on crime. This is what will happen to [Ex-Comverse chief executive] Jacob Alexander." So perhaps the bottom line is: it's important to be among the first to say "I'm sorry." When you're the last man standing, the government doesn't need your cooperation, and you become the target.