Companies can be kept honest by in-house whistleblowers who have
first-hand knowledge of malfeasance. – Andrew Fastow, former Enron CFO

Twelve years ago this month, Enron declared bankruptcy; a crashing end to what had been a high-flying bigger-than-life firm. It was not a happy holiday for the thousands of employees who lost their livelihoods and their retirement savings.

I wasn’t thinking this is fraud.

Former Enron CFO Andrew Fastow spent seven years in prison for his part in the company’s downfall. Today he’s a consultant who speaks about ethics, as he did last month at the University of New Mexico, courtesy of the Daniels Fund Ethics Initiative.

Fastow said that the behavior and resulting (fraudulent) financial transactions that sent him to prison also had, earlier, gotten him named CFO of the Year by CFO Magazine. Somehow, he said, the gate keepers (which he admitted should have included himself, as CFO) failed to notice or stop the behavior. “I wasn’t thinking this is fraud,” he said. “I thought I was doing something to help the company.” (Mayfield 2014)

How is it possible that he or anyone could engage in unethical if not fraudulent behavior and not know it? In Fastow’s case, he said, he and other Enron executives saw the complexity of accounting rules not as a problem but as an opportunity to finagle results. (Quigley, 2014) They apparently convinced themselves that it was in their own and the company’s best interest to exploit every possible loophole because if they didn’t do it, someone else would, possibly beating them in the market. They created a culture that seemingly made it easy for people to close their eyes to the ethics of the behavior and to tell themselves they weren’t actually breaking the law. They fooled themselves and hurt many people in the process.

You need a gate keepers and whistleblowers.

This is not a happy holiday story. Instead, it is a cautionary tale. Fastow told his audience that you need a gate keeper, but indirectly he showed that you need more than one, because “You can always find an attorney to give you the answer you want. You can always find an accountant [or a CFO] to give you the answer you want. You can always find a board member who wants that answer.” One of the lessons learned is that you must have a culture that empowers gate keepers to question assumptions and to examine the ethics of a decision not just the letter of the law.

Fastow closed his remarks by saying that companies can be kept honest by in-house whistleblowers who have first hand knowledge of malfeasance. He did not say, but could have, that potential whistleblowers also need a culture that empowers them to speak up, whether openly or anonymously via an ethics hotline.

Most companies strive to be ethical, and that’s a good thing. Most leaders and employees try to do the right thing, and that’s even better. As you prepare to celebrate the holidays give some thought to celebrating the gate keepers and whistleblowers who help you live up to your ethical goals.

Ethical Advocate celebrates the holidays with you.

References:

Daniels Fund Ethics Initiative, http://www.danielsfund.org/Grants/Ethics-Initiative.asp. As retrieved December 12, 2014.

Mayfield, Dan. “Former Enron CFO: I wasn’t Thinking this was Fraud,” Albuquerque Business First, November 25, 2014.

Quigley, Winthrop. “Using Financial Rules to Hide the Truth,” Albuquerque Journal, November 30, 2014.