SOX Summit: Impactful Statements from the Enron Whistleblower
The name "Enron" is practically synonymous with corporate fraud. With thousands of lost jobs and enough economic heft to shake the stock market for years, the scandal was monumental, to say the least.
At the heart of that scandal was Sherron Watkins, Enron's VP of corporate development, who blew the whistle on the company's financial crimes. At the SOX Summit 2020, the SOX & Internal Controls Professionals Group was lucky enough to interview Sherron and hear her story firsthand.
Keep reading for five highlights from our conversation with Sherron, or watch the full summit on demand now.
1. Ethics and the three prongs of white collar crime
So, how does something as huge as the Enron scandal even happen? How were so many people complicit with what was going on?
There's not just a desire for a Scrooge McDuck swimming pool of money at the heart of decisions like that, said Sherron. She cites three major factors to the issue:
"First, extreme pressure to achieve a result like earnings or cash flow or personal theft. Second is an opportunity to cheat or game the system. But third, for white collar crime, it's a rationalization that what you're doing is not wrong or not your issue."
What happened with Enron was the doing of more than one or two or three parties—it was a group think that consumed the culture of multiple teams. Some figured they were low on the totem pole and were only following orders. Others thought that they were simply using reporting regulation loopholes.
"And that's not very ethical," Sherron stated. "It completely ignores the one overriding general principle of accounting—your financial statements should fairly represent the financial condition of the company. You know they are supposed to represent financial viability."
2. How toxic environments contribute to fraud
Financial fraud isn't just this thing that happens in textbooks. There can often be unexpected and situational pressures that answer the question of why people stay in toxic work environments, as Sherron explains:
"You think you're going to run across a problem, and you're going to quit and not get involved or leave a company. But the reality is sometimes it's money issues, and sometimes it's ego.
"I had been hired at Enron as a director, and I had not yet made vice president. And Enron was the place to work in Houston, Texas. But they also had a reputation for having a forced bell-curve, rank-and-yank compensation review system where the bottom 25 percent were always being pushed out.
“So my own ego said, ‘I’m not about to start interviewing and leave Enron because people are going to think, Hey, you haven’t made vice president, you’re being pushed out.’”
In so many words, personal and professional devastation is a real risk for whistleblowers.
3. What to do when you discover fraud
Heaven forbid you discover any fraud in your own organization, but Sherron offers some wisdom for professionals who think they may have stumbled across something not entirely above board. Even if it's just a suspicion, it couldn't hurt to do your due diligence.
"When you run across something that is challenging your value system, that looks like it's violating the company's procedures and policy, talk among yourself, find some peers and colleagues that agree with you," said Sherron, "Report it. Put it in writing, so people can't misrepresent what you were trying to say."
Sherron thinks she could have gotten some coworkers on her side that could have helped her confront Enron leadership about her concerns. Then she would have had strength in numbers to make her message stronger, as well as minimize her reputational damage.
"But it is probably best to leave the company if your concerns are not addressed and they really are violating potential laws or certainly ethics," said Sherron.
4. Could Enron happen again?
Many provisions have been put in place since the Enron scandal. To name a few—the Whistleblower Protection Act, the Sarbanes-Oxley Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act. Initiatives such as these provide companies framework to maintain credibility and accountability, and also encourage employees who experience misconduct to come forward.
Unfortunately, none of these resources were available to Sherron back in the early 2000s. She reflects back on her experience:
"I am now so much more optimistic that Enron's fate would be different because of the bounty provisions within the Dodd-Frank Act that passed in 2010, because that now gives someone like me an avenue to speak to an attorney, hire that attorney, and remain anonymous and report my issues to the SEC. If the SEC had come in 1996, there would have been a fine, and Enron would have gotten back on a better path."
5. On personal values and staying silent
Every company has their mantras and core values—and Enron did, too.
"It's ironic. Enron's core values were respect, integrity, communication, and excellence. And we had banners all over the headquarters with those values. We had little notepads with the communication value, the tagline was from Martin Luther King, Jr., and it said, 'Our lives begin to end the day we remain silent about things that really matter,'" recalls Sherron.
She feels that this quote also has an inverse meaning. Your life can begin to soar the moment you speak up about things that truly matter. This was true for Sherron.
Luckily, Sherron is one of few whistleblowers who have had success post-accusation. She received plenty of media attention, and for the past 20 years she has traveled to give speeches to professionals and students. Refusing to remain silent has brought her great notoriety.
"It's ironic how many people stayed silent at Enron. But, you know, what does that mean?" Sherron reflected, "Your lives begin to end. And 20 years out from Enron and knowing colleagues that have been trying to rationalize their culpability in Enron's demise, it really means that part of your soul begins to erode. And you can't get it back when you stay silent about things that really matter."
Hear Sherron's story directly from the source by watching the on-demand webinar.