Enron 'Emperor' Didn't Know He Was On The Titanic

With Gen. Sam Houston literally hanging around in the background, Enron whistleblower Sherron Watkins said that Sam had it right when he advised "...do right and fear not..."

“It really, truly felt like I was on the Titanic, witnessing it sinking,” former vice president of the Enron Corporation Sherron S. Watkins said of the company’s decline in 2001.

Watkins, dubbed by the media as Enron’s “whistleblower” for alerting then-chief executive officer Ken Lay to the accounting irregularities within the company, discussed the corporation’s deterioration and advised students of warning signs of unethical future employers during the President’s Speaker Series lecture on Tuesday morning.

From an insider’s perspective, Watkins likened Lay to the naked emperor from the Hans Christian Andersen fairy tale “The Emperor’s New Clothes.” In the story, the emperor was convinced by two swindlers into being dressed in a special cloth invisible to anyone who was either stupid or not fit for his position.

Jeff Skilling, an Enron CEO, and Andy Fastow, a chief financial officer, were like the swindlers, creating financial structures that were like the cloth: it really wasn’t there, according to Watkins.

“The emperor, like Ken Lay, was too focused on his outward appearance, too focused on his next set of good clothes, and he’s really not paying attention to his empire,” she said. “Ken Lay was never looking at the details of Enron. He was always the outward face, looking at internationally what we were doing, bringing power or natural gas to developing countries. He was very much involved in politics, very much involved in the public face of the company, but never looking at the details.

“As a result, he became the ultimate victim of the swindlers,” Watkins said, adding that the building pressure of people lying about understanding the “cloth”—the financial structures—escalated to the point of fraud.

The financial structures created by Skilling and Fastow were so complex that it took two executives three hours to try to explain the structures to Watkins, she said. Such explanations usually ended with a comment to the effect of the auditing company said it was OK.

“Smart people who couldn’t get the right answers just stopped asking questions,” she said. “People were hesitant to say anything because once you said that it might be OK, once you go along with it, it’s really hard to go back and say, ‘you know what, emperor, I never saw clothes.’

“People wouldn’t understand these structures; they would just go along with them, and once their flaws were really apparent, they were down the wrong path,” she said.

When she first came to the realization of these flaws, Watkins said she began looking for a new job.

It was only when Skilling “jumped ship” (quit) that she realized her concerns were much worse than she had initially thought and went to inform the emperor that “he was naked.”

The results for the company once lauded for its innovation by such entities as Harvard and Darden, Fortune magazine (which named Enron the “Most Innovative Company in America” for seven years in a row) and BusinessWeek have been devastating. Some 7,000-8,000 people in Houston lost their jobs with no severance pay, $6 billion was lost by shareholders and $60 billion was owed to creditors, who reclaimed 25 cents for every dollar actually owed.

Watkins warned students that the Enron scandal started with the rationalization that what they were doing wasn’t breaking the law, the propensity for which is one thing they should look out for in their future jobs.

“Fifty percent of white collar criminals go to prison able to pass a lie detector test that they did nothing wrong,” she said. “Why? What hinges on white collar crimes is the rationalization that what they are doing is not technically breaking the law.”

She told students to judge their ethics by the three M test--mentor, media, and mother. If you would be embarrassed if any of them found out or knew what you were doing, don't do it.

She also referred to a comment attributed to Gen. Sam Houston in 1855, when he said he was going to give a speech, even though he knew it would be unpopular, because he believed it best to "...do right and fear not..."

“If you’re not honest, you’re going to have fear in your life, and you won’t be able to make a stand that you want to later in life,” she said. “I could go to Ken Lay because I knew my expense reports were squeaky clean.

“I am certain that he (Lay) had a team look through my eight years of expense reports to see if they could find something funny and fire me for cause (stealing from the company through expense reports),” Watkins said. “If you are not always honest, there may come a point in time in your lives when you want to make a stand for what is right, but you are filled with fear that you are going to be caught for some other infraction that you have done. You must always be honest so that you can be fearless.”

Finally, she told students if their value systems were challenged routinely or if they do not have a zero tolerance policy for ethically-challenged employees, get out of the job, because it can only cause problems later down the road.

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SHSU Media Contact: Jennifer Gauntt
Nov. 15, 2006
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