The Business Ethics Blog

I first met — and blogged about — Walt Pavlo back in August. Pavlo spent two years in jail for fraud and money laundering at MCI. Pavlo now works as a professional speaker, letting his own story serve as a cautionary tale.

I interviewed Pavlo by phone yesterday, about the 24-year jail term handed to former Enron CEO, Jeff Skilling, two days ago. It’s a longish interview, so I’m going to post it here in 3 installments over the next three days.

Business Ethics Blog: Interview with Walt Pavlo

(Note: the following has been edited for clarity and length, but I’ve also tried to retain the informal character of the conversation.)

Business Ethics Blog: Jeff Skilling was just sentenced to 24 years plus 4 months, the longest sentence handed out so far in the whole Enron case. Given what you know about the case, does that make sense?

Walt Pavlo: You know, I think it’s a long sentence. The other thing that came with that sentence was forfeiture of about $45 million. What I didn’t see was how much remained. It sounds like a lot of money, and I think I would’ve rather known what was left. Is it a million, is it fifty thousand, is it fifty million? I really don’t know the answer to that. I think that’s where the punishment should be.

For a non-violent crime, that many years just doesn’t make sense to me. You’ve got murderers and sex offenders who do far, far less. He’s a lesser danger to society. Do I think he should go to prison? Positively. But 24 years seems excessive. But I would’ve liked to know more on the monetary side: was that significant? How much is left? That’s what shareholders would be interested in.

BEB: In my Blog on Tuesday I noted that the standard reasons for putting people in jail are denunciation, deterrence, incapacitation, and rehabilitation. So let’s take those in order. First, what’s your view on Skilling’s 24-year-sentence as a way of publicly denouncing what he did, or maybe his way of doing business?

WP: I’d be the last one to say it’s not effective. It should open a lot of eyes out there. At the same time, as I said earlier, it seems excessive. They could’ve gone with much fewer years, and it probably still would’ve been somewhat of a deterrent.

But I believe that white collar crimes happen not looking at the punishment but looking at the likelihood of getting caught. And I would think someone like Skilling just didn’t see himself ever getting caught. He doesn’t even see it today.

I don’t know how much of a deterrent it is. Is it some? Maybe. But it’s certainly not one where everyone says “well, I’m going to do everything by the book now!” I don’t see that. You know, crimes will happen in the white-collar world, without people thinking about a prison sentence when they’re in the middle of the act.

BEB: Well we’ll get back to the idea of deterrence in a second. But sticking with this idea of denouncing the crime. In your own experience, in your own case, was there any psychological or emotional impact from being told, by an authority, by a court, that “what you did was wrong, and this is just how wrong we think it was?” Because that’s supposed to be part of this idea of denunciation.

WP: I knew I did something wrong. That wasn’t the issue. But the amount of time, even in my own case, when they read down through the Federal Sentencing Guidelines and said, “this charge carries 30 years, and this charge carries 30 years,” for each count. I just remember being in shock at the amount of time, even though I knew I’d done something wrong. I mean, I was still astonished at the amount of time that I was looking at. I’m certain that Skilling, one thing he’d look at, and I know his lawyer did, is to say ‘hey, why don’t you kind of put it in line with other guys who cooperate?’ and give him 10 years, because that would be almost double what Fastow got.

BEB: So, what about deterrence? A lot of editorials have been saying that the judge in this case has ‘sent a clear message’ by giving Skilling such a lengthy sentence. Do you think his sentence deter others in the world of business from fraud or from pushing the limits?

WP: This judge, Sim Lake, has a history of being fair. He looked at this case and said it justified 24 years. To me, because of who the judge was and what I had known about him and other sentences [he had handed down], I think that it really did speak to how seriously the courts now view this thing, particularly at that level.

BEB: Will it work? Will it deter people?

WP: I think somewhat, but again I’ll go back and say the sentence is very severe. And what Skilling was accused of and was found guilty of was very severe, and the losses were in the billions of dollars.

Other people rationalize, when they’re doing a crime, about what the impact would be. So to me I would think that rationalization plays a large part in that without looking at what the end penalty would be. And I even think that Skilling himself must be astonished at the amount of damage he’s accused of doing. He says ‘you know, maybe I did some things wrong, but I didn’t do all that wrong!’ Will it be a deterrent? I think somewhat, but I just don’t think it’s a cure-all, by any means.

BEB: So, people may not make the connection between what they’re doing and the serious wrongs they see being punished.

WP: Sure. You know, I think a lot of people will even rationalize in their minds, they’ll say you know what I may be doing some thing wrong but, my gosh, I’m not doing that much wrong, you know, into the billions of dollars. And I think that’s the wrong way to look at it, to be honest with you. That’s a rationalization that takes place when people say ‘you know it was bad but I wasn’t as bad as Skilling and Lay.’

This case was so well-publicized, and so large a dollar amount. I don’t know if it’ll be a deterrent because people just don’t see themselves as being that bad. And honestly, looking at what Skilling says, he doesn’t see himself as being that bad.

[to be continued…]