When it comes to cheering CEOs, booing them or throwing them in jail, a consideration that ought to be nagging is whether we're reacting to luck or design. Ken Lay was prosecuted not for the sins that brought down Enron, but for failing to tell investors the company was predestined to fail even as he tried to save it. The same treatment is now being meted out to two ex-Bear Stearns hedge-fund managers. An eye-opening new paper asks: With so many public companies to choose from, how do we know the good firms from the merely lucky ones? The authors -- Andrew D. Henderson of The University of Texas at Austin, and Deloitte Consulting's Mumtaz Ahmed and Michael E. Raynor -- begin with a caveat no less applicable to the joyous media blame-laying after the subprime debacle: "If you have a large number of players in a game in which luck plays a major role, then some players will assemble seemingly impressive winning records by chance alone."
When Bad Luck Is a Crime
The Wall Street Journal