THE INDICTMENT of Kenneth L. Lay, the creator of Enron, is proof, if any were needed, that even the whitest of white collars does not put one above the law. In Enron Corp.'s heyday, Lay was celebrated as a business genius and enjoyed broad political access; he was close enough to the White House to be known as "Kenny Boy" by the president. But none of that protected him from being led away from his home in handcuffs yesterday morning. He faces criminal and civil charges, notably for his role in assuring investors that Enron's stock was a bargain, even as he himself sold the stock and the firm's finances were in a secret state of chaos. For the workers who lost their jobs and pensions amid Enron's collapse, and for the investors who lost their savings, Mr. Lay's indictment may provide some sense that justice is being served, whatever the court's final verdict.
Of still broader importance, however, is the prospect of preventing more corporate scandals. Enron's name has come to evoke more than just one company; it is a sort of shorthand for the systemic problems in corporate America, from loopholes in accounting rules to conflicts of interest among the auditors who supposedly enforce those rules to the boards of directors that fail to hold managers accountable. In the initial stages of the Enron scandal, in early 2002, it was argued that the firm's implosion represented the misbehavior of a few "bad apples." But, though the Justice Department is to be commended for charging 30 people connected to Enron, including 11 who have either pleaded guilty or been found guilty, the "bad apples" theory is unfortunately wrong. Mr. Lay's indictment will help deter would-be fraudsters at other firms. But repairing the corporate governance and accounting rules that surround chief executives is key to avoiding scandals.
Much progress has been made in fixing those rules. The Sarbanes-Oxley accounting law, passed two years ago, required companies to improve board independence and created a new regulatory body to oversee auditors. The Securities and Exchange Commis- sion has seized the pro-reform climate to win new protections for investors, notably those who own shares in mutual funds. But the nation's corporate chieftains are beginning to mount a counterattack. They complain about the cost of this new regulation, not paus- ing to mention the cost of Enron-type scandals. And they are not ashamed to campaign against further regulatory improvements.
There are two issues on which this counterattack is especially blatant. The first concerns executive stock options, which regulators believe should be counted, like any other form of compensation, as an expense: A coalition of high-tech CEOs has lobbied Congress to overrule this common-sense determination, and the House may even pass a measure doing what the silicon lords have asked. The second concerns shareholders' rights to elect company directors: The SEC has proposed a rule that would allow shareholders to nominate their own candidates to serve on corporate boards in some limited circumstances. Again, chief executives have lobbied ferociously to prevent this modest change, and SEC Chairman William H. Donaldson appears to be wavering. Mr. Donaldson should summon the courage to fight back. It will take more than the prosecution of Mr. Lay and his ilk to protect workers and investors from the abuse that tarnishes too many boardrooms.