Raphael Chinca
10/4/19Raphael Chinca
Definitions of Normality Professor Dunning-Lozano
Enron: White Collar StrainDefinitions of Normality
The case of the Enron Corporation, one of the most famous economic scandals in recent
history that cost over 20,000 people their jobs, retirement money and life savings is a typical
example of white-collar crime. It shows the motivation and driving forces behind white-collar
crime and reveals just how poorly some corporations are managed. Similar tactics used by Enron
to fraud investors were used by the banks in the 2008 financial crisis. By analyzing what pushes
successful corporations like Enron to commit such widespread financial crime, we will hopefully
be able to predict when future corporations will commit similar crimes and intervene before such
damage has been done.
While there are aspects of Merton’s strain theory that are applicable to making
sociological sense of white-collar crime, there are several key distinctions between the type of
strain Merton elucidates and the type of strain acting upon executives of companies like Enron.
Cultural goals, for example, shift from the prototypical ‘American Dream’ of owning a house,
being able to support your family and living comfortably to goals of extreme, incredible wealth.
The structural inequalities that act on low-income criminals are not exerted on white-collar
criminals, as these people already have access to legitimate means to achieve their goals. For
white-collar criminals, it is not about the structural inequalities that lead to strain from being
unable to attain their cultural goals, but personal mistakes infringe on their ability to achieve
cultural goals of obscene amounts of wealth and public status.
Hagedorn’s typology of how different types of people react to strain can be almost
directly applied to these cases. The subtype of ‘New Jacks’ can be used to explain motivations of
executives who commit financial crimes, especially that of Ken Lay and Jeff Skilling, ex-CEO
and ex-COO of Enron, considered to be the architects and mastermind of the entire scandal.
While racial discrimination is obviously not a factor in creating strain, economic constraints is
most certainly one. However, these constraints are not caused by economic inequality and racism
as they are with low-income criminals, but by personal mistakes made by executives and people
in positions of power.
The story of the Enron scandal starts with the beginning of the company. In 1980, Ken
Lay had already achieved the ‘American Dream’ and more. He was making $400,000 a year,
owned expensive homes all over the country and could afford most luxuries life can offer. Still
on the pursuit for even more money, Lay agreed to have his gas company HNG (Houston
Natural Gas) bought out by the larger pipeline company InterNorth. The CEO of InterNorth,
Samuel Segnar, feared he would lose control of the company after the majority of shares were
bought out by venture capitalist Irwin Jacobs. Thus, wanting to turn InterNorth into a bad
investment, Segnar bought out HNG for so much money that InterNorth would have over $5
billion in outstanding debt. The new company, now called HNG/InterNorth bought out all of
Irwin Jacob’s shares and made Lay CEO.
By 1987, HNG/InterNorth, now called Enron, was spending tons of money paying back
its debt, and the company was losing money quick. In comes Jeffery Skilling in 1990, hired by
Lay to help restore the company’s profits. Skilling used mark-to-marking accounting which
meant that whatever profit a deal was expected to make would be counted when the deal was
first closed, not when the money came in. Along with this, CFO Andrew Fastow, owner of Gas
Bank, started setting up dummy corporations for which Enron to unload their debt to. These
proxy companies would continually buy and sell shares of Enron stock, raising the price of the
stock with each purchase and sale. Along with other financial and accounting trickery, Enron’s
stock price kept rising and at its peak in 2000, was worth $90.75 per share and the company was
valued at over $70 billion.
How can Merton’s strain theory apply to such a case? Obviously Lay didn’t face any
structural inequalities like economic or racial strain, and Lay had already achieved the common
cultural goal of earning enough money to support yourself and a high social status. However, it
seems that in the corporate world, cultural goals are redefined from the typical ‘American
Dream’ to that of capitalist greed and the desire to acquire absurd amounts of money. With the
cultural goal redefined, we can look at what was the cause of strain by examining what inhibited
Lay and other executives to achieve their goals. In Merton’s theory, structural inequalities like
uneven economic distribution and racial discrimination seem to be the most prevalent inhibitor
restricting low-income criminals from accessing legitimate means to achieve their traditional
cultural goals. Lay, though, had access to legitimate means. He had already amassed a great
amount of wealth, had a Masters degree in economics, and was already a civic leader by
investing in charities around his community. What, then inhibited Lay and other executives from
living out their exaggerated dreams of extreme wealth? As detailed earlier, it was personal
mistakes made by Lay and other executives to put Enron in such extreme debt that they had to
innovate criminal financial ways to earn back their money. They had access to money and could
invest it in legitimate financial practices, but due to some personal/individual flaw they decided
to pursue innovative financial crimes to achieve their goals. It was unnecessary for Enron to
commit such accounting crimes, as they could have gone public with their debt and found new,
legal ways to curb their deficit. It was also unnecessary for Segnar to buy out HNG for such a
ridiculous price just to push out Irwin Jacobs, since Jacobs was only buying shares of what he
thought was a good investment. It boils down to personal mistakes made by these CEO’s, instead
of structural inequalities acting upon them, that led to the strain of having incredible amounts of
debt while also pursuing the cultural goal of earning insane amounts of money.
While most of Hagedorn’s typology of how individuals react to strain don’t apply to this
case, the subtype of the ‘New Jack’ fits very well. ‘New Jacks’ are defined by people who
overconform to the American ideal of success and exaggerated fantasies of extreme wealth by
innovating criminal ways to achieve such goals. Ken Lay and other Enron executives can
certainly be labeled as this ‘New Jack’ due to their pursuit of extreme wealth and success. The
key distinction is that with low-income ‘New Jacks’, they only pursue innovative criminal means
because of the structural inequalities like racial discrimination and economic disparity prevent
them from accessing legitimate means to achieve their goals. With Lay and the other executives,
they obviously had access to legitimate means, but their personal mistakes and blunders is what
inhibited from living out their extreme wealth and success. Their outstanding debt, caused by
their own mistakes, led to strain acting upon them to innovate financial crimes to curb their debt.
While there may be no physical violence apparent, lies and deceit were the tools used by
these white-collar criminals. Their many victims held no physical scars, but rather emotional
and financial scars from losing their jobs, life savings and retirement money. This pattern of
reacting to strain from losing money by innovating criminal financial means is easily apparent in
the 2008 financial crisis, and many other white-collar crimes. By defining the main motivations
and driving forces behind these crimes, we will hopefully be able to prevent future white-collar
crimes from occurring.
Professor Dunning-Lozano
10/4/19
