IRVINE, CA--Former Enron chairman Kenneth Lay has just died. The common perception of Lay is that he and other Enron leaders, eager to make money, schemed to bilk investors. The ethical lesson, it is said, is that we must teach (or force) businessmen to curb their selfish, profit-seeking "impulses" before they turn criminal.

"But all this is wrong," said Alex Epstein, junior fellow at the Ayn Rand Institute.

"Enron did commit fraud, but its fraud was primarily an attempt to cover up tens of billions of dollars already lost--not embezzled--in irrational business decisions. Enron began as a truly productive, innovative company in the field of energy--but the company's leaders were not honest with themselves about the nature of their success. They wanted to be 'New Economy' geniuses who could successfully enter any market they wished. The mentality of Enron executives in engineering their bad decisions was that if they felt it should succeed, it would succeed. They made no distinction between reality as they wished it to be and reality as it is. As they experienced failure after failure, they deluded themselves into believing that any losses would somehow be overcome with massive profits in the future.

"Enron's problem was not that it was 'too concerned' about profit, but that it believed money does not have to be made: it can be had simply by following one's whims. The solution to prevent future Enrons is not to teach (or force) CEOs to curb their profit-seeking but to teach them the profound virtues money-making requires. Above all, we must teach them that one cannot profit by evading facts. This is what Enron's executives did not grasp--and the real lesson we should all learn from their fate."

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Alex Epstein is a junior fellow at the Ayn Rand Institute. Mr. Epstein's Op-Eds on business and government regulation have been published in major newspapers such as the Detroit Free Press, Houston Chronicle, San Francisco Chronicle, Arizona Republic, Philadelphia Inquirer, and Orange County Register.
       
Alex Epstein or ARI president Yaron Brook is available for interviews on this topic.
Contact David Holcberg at media@aynrand.org or 800-365-6552, ext. 226.