Pavlo on Skilling

The Business Ethics Blog

Prof. Chris MacDonald

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Walt 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. Chris MacDonald interviewed Pavlo by phone, about the 24-year jail term handed to former Enron CEO, Jeff Skilling. Pavlo isn't an expert on sentencing, or on Enron. But he has a special perspective on what leads people to commit white-collar crimes, and what it's like to go to jail for it.

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. The interview took place on Thursday, October 26, 2006. What follows is a compilation of the 3 segments of the interview, originally posted on the Business Ethics Blog on October 27, 30, and 31.)

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.

BEB: The other reason we put people in jail is to ‘incapacitate them,’ to separate them from the public so that they can’t do harm. Was a 24-year-sentence necessary for that, in Skillings case?

WP: I don’t think so. I think that you learn your lesson in prison in a few years. I mean particularly for someone who’s intelligent. I’ll give Skilling credit, he’s obviously a well educated guy, he’s not mentally ill, like a number of people who are in prison, and he certainly has the ability to reflect on the impact this has on his life and it doesn’t take 24 years to do that.

A long sentence for him, that I believe would have allowed him to reflect, it could have been 5 to 10 years. You know, prison is more of a self-paced program. There’s nothing in there except the onus on the individual to look at their actions.

I can’t imagine that Skilling is going to spend 24 years in prison thinking about how wrong he’s done things and come out a different person. I think that he will, in the short term. But then over a long period of time he’s just going to lose contact with society and just become institutionalized in many ways.

BEB: So you don’t think this is a place where there’s much hope for rehabilitation?

WP: No, I don’t even see what the impact would be, even if it was positive, what it would accomplish at the other end. He’s going to be a broken man when he gets out. He’ll be in his 70’s if he exits alive, and he certainly can’t work again. I don’t know what that accomplishes. One strike and you’re out, in his case. It’s a big strike, but that’s it. First offense, only offense, last offense.

BEB: When I heard you speak this summer in Tulsa, you said that in your own case, your jail sentence was not the main penalty. The main penalty was the effect your criminal record has on the rest of your life. Skilling will likely be in jail for most of the rest of his life. How does your comment apply to him?

WP: Well he is not going ever be able every to demonstrate publicly or in society what he did wrong. And I think because of the length of his sentence, probably he’s not going to be in the frame of mind to tell anybody he’s sorry. It’s like, ‘hey, you guys have sent me here for the rest of my life…’ and I think the length of his sentence, in a way, is going to prevent him from coming forward and saying ‘you know I really did screw up, I really did do something wrong and here’s what I learned from that.’

I think all that stuff is just going to waste away with him in prison and I think that’s unfortunate, and I think there are a lot of valuable lessons – they might be in greed – but they’re just going to go away with him and we’re just going to see a man who’s bitter and goes away and takes every secret with him, about what went wrong that we could all learn from. And that’s sad.

BEB: After you got out of prison, you decided to try to do some good by speaking to business students, telling your story, and letting it serve as a warning. Do you think Jeff Skilling can do anything positive with the rest of his life, given where he’s going to be?

WP: It would be miraculous. It’s difficult for me to do it, and I say that because so few white collar criminals who’ve been convicted do that. There’s no incentive for him to do that. For him to try to make a positive impact, there’s nothing he’s going to get out of it. He’s not going to come home any earlier.

Over time, I see him becoming more bitter, or just succumbing to it, and never being able to share with us what that is, good or bad. It’s just going to go away with him.

The only version of events we’ve seen is the Prosecution’s side and a defense that quite honestly just didn’t make sense to people. We’d rather say, ‘Can you be honest with us for a moment and tell us what went wrong? A lot of people lost a lot of money. We don’t want this to happen again. You need to be punished. But can you tell us what happened, what your thoughts were, so we can learn from it?’ And I think all of that’s going to be lost.

BEB: What do you make of Skillings’ apparent lack of remorse? You know, he’s said, ‘I’m sorry that people got hurt,’ but he hasn’t expressed any remorse for his role, he hasn’t sort of said ‘yeah, you know I screwed up.’

WP: Those are questions, Chris, that get back to this very long sentence: the guy was fighting for his life. I think if you put any person in that situation, where he just felt like he had to defend his character, or whatever, or really defend himself so that he wouldn’t be put away for the rest of his life. He had to adopt that strategy, because the alternative was such a long time in prison.

That’s a fine line. Where do you provide an incentive for someone to be honest, and still punish them, and allow them to really tell a story and be remorseful and let us critique it: you know, is he really sorry? Did he really tell us anything? And I think, again, his story is going to go with him to go to prison. And that’s going to have to be his story, which is that he didn’t do anything wrong, which is absolutely ridiculous. It’s ridiculous.

So we have a Prosecution that says ‘everything he did was wrong.’ You have a defense that says ‘I did absolutely nothing wrong.’ And then, we’re left in the middle. I’m just speculating…but that’s where we’re left. I think that’s unfortunate: I’d rather hear it from him. There’s got to be some deterrent where he’s punished, he’s allowed to come clean, and lay it all out there about things that he did right and things that he did wrong. I think we could learn from it, but as it is I don’t think we can learn from it.

BEB: The judge in this case recommended that Skilling serve his sentence at the federal penitentiary at Butner, North Carolina, which is a medium-security facility. Does that sound like the kind of ‘country club’ that many people have worried Skilling will be sent to? Because the presumption, of course, right, is that for white-collar criminals, that prison really isn’t so bad for them: big-screen TV’s and golf-courses, and so on.

WP: There are none of those. Even in minimum security there’s no big-screen television. There’s strict control of your movements, in there. The reason he’s got that is because he got such a long sentence, he’s got to be under higher security. He has 24 years. If you’re in a minimum-security camp, there’s the chance that you could just walk off. It’s for his own benefit, his own mental health. We can’t put you in a situation where you could try to escape, because it is such a long period of time.

But you know eventually he’ll get switched to a camp, because he’s a minimum-security person. When he’s got 8 or 10 years of his sentence left, he will be in a minimum security prison, it’ll just take him a while to get there. But it’s a tougher existence where he’s going to be.

BEB: So people who are angry at Skilling shouldn’t worry that his life is going to be too soft or too easy?

WP: No, no, it’s going to be one heck of a punishment. It is a very long time he’s going to locked up with, at that level, very few white-collar inmates. I mean very few. Most of the ones he’s going to be involved with are going to be life-in-prison sorts of people, or people who have sentences very similar to his for other crimes, like for moving large amounts of drugs or, in some cases, murder.

There’ll be very few white-collar inmates. That’s a punishment too, because there’ll be very few people he can really even associate with, and just talk to. He doesn’t know anything about that life. I think that’ll subject him possibly to being singled out and beaten up, and things like that. And to me, as non-violent offender, that’s going to be a very scary environment for him to be in.

BEB: A lot of people aren’t going to have much sympathy. But a friend of mine who’s a prosecutor put it nicely when he said that prison is a form of punishment; it’s not a place we send you to be punished, through violence or whatever.

WP: Exactly. And what does that say about his ability to rehabilitate? You know, that kind of fear and resentment when he’s in there, there’s going to be no rehabilitation done. Over time he will just break. It’s certainly not a life where he’s going to be able to really rehabilitate. I mean if he is, it’s going to be an incredible story, if he can try to find a way to get back or redeem himself in some way. I don’t know how you even do that, with a sentence like that, any place like he’s going.

BEB: Any other thoughts, things you’d like folks to know about Skilling’s case? You’ve got a special perspective on this. Anything you wish people understood?

WP: Even though I’ve gone to prison, and I’ve talked a little about the excessiveness of Skilling’s punishment, I am certainly not one to say that prison should be abolished for white-collar criminals. I believe that there is a place for that.

© Chris MacDonald