Tag Archives: Cooper

No more kool-aid any more: Sherron Watkins and Enron

Power Failure

  • I am taking an ethical stand
  • You are a whistle-blower
  • He is a grass

The ethical complexities of whistle-blowing tap deeply into the issues of divided loyalties.  It is hard to predict what you’d do faced with this sort of dilemma, and I’ve always been interested in the stories of those who have. Power Failure is co-credited to Sherron Watkins the woman usually described as ‘the Enron whistle-blower’.  I was eager to compare it with Cynthia Cooper’s book Extraordinary Circumstances about blowing the whistle in Worldcom which I reviewed a while ago.

I was curious to understand the differences in the two women’s experiences. Cooper was head of internal audit and her job was to prevent just the sort of fraud (simple, but huge) which she found at Worldcom. The horns of her particular dilemma were her professional accountability vs corporate loyalty. Watkins on the other hand was only one of dozens of insiders expressing concern about Enron both within and without the company, others had leaked for years to market analysts, to the press, even to Yahoo message boards. Watkins just happened to be the one who failed to maintain her anonymity.  The irony is that she kept her concerns within the company, taking them to CEO Ken Lay instead of narrow-casting them outside.

This is one of the few books about Enron not put together from clippings, and it shows.  Swartz clearly obtained access to a number of senior or at least central insiders.  It provides a real sense of why Enron was an addictive place to work, which I’ve not found in any other book.   The only other book with an Enronian’s name on the cover Brian Cruver’s book, ‘Enron, Anatomy of Greed‘, but he arrived late and was just one of thousands of low-level employees dismissed with a $4,000 pay-off just before Christmas 2002.

Reading both these books though, three things stand out for me other than the eye-wateringly huge amounts of money.

The first is the absolute importance of operational controls. Yes, ethics and risk management matter both morally and in business terms, but operational controls come first, because operational chaos not only permits these kinds of fraud it may even require them.  Frequent organisational re-structures and high levels of executive churn are bad signs.  Beware of companies which are overly acquisitive or growing too fast, because things will fall down the cracks.

The second is that it is hard to be faced with the morning-after when you have stopped drinking the kool-aid.  ‘Power Failure’ and ‘Extraordinary Circumstances’ both touch on how difficult it was for Watkins and Cooper to determine what the right thing to do was, let alone how hard it was to do it.  I’d like them to have covered the consequences to themselves in a bit more detail, but I guess we don’t like the idea that good people can suffer for doing what’s right.

Finally, while reading the book I found myself wondering what it is like to be Jeffrey Skilling or Andy Fastow right now, in jail.

Enron was a long time ago and I do feel that I’ve read all I need to on the subject, but Lehmans, Goldman, RBS and HBOS remind us that arrogance, chaos and greed enable companies to fall as well as rise.

PS – ‘Power Failure’ is written in the third person by journalist Mimi Swartz. For a more a direct insight into Watkins herself look at the BBC programme Hard Talk where Watkins exchanges wry regrets with the HBOS whistle-blower, Paul Moore.  (This will only be watchable for another two months).