Return to site

Enron - Laws vs.Ethics vs. Outrage

· Business,Ethics,Enron

Global expert on risk communication and outrage management, RL Expert Dr. Peter Sandman, comments in 5 parts on our review of Enron with a focus on laws versus ethics versus outrage.

Q. Peter, I recently had the opportunity to dine with Andrew Fastow, former Group CFO of Enron. It was an enlightening conversation. I was astounded, having recently completed a desktop audit of listed Asian companies, to note that despite today’s more regulated and enlightened business environment, we continue to witness Enron-esque failures of corporate governance such as aggressive accounting practices. Perhaps the one thing that surprised me most about Andrew’s case which was dated more than ten years ago, was that he was not jailed for breaking the law, but rather for abusing the principle of law. The Board or CEO had indeed signed off on every action.

Fastow observed that it is often the ambiguity and complexity of laws and regulations that breed opportunities for loopholes and problematic decisions. In his time as Chief Loophole Officer, these were Enron bonusable events, not corporate ethics or conduct violations.

While I appreciate that corporate directors, management, attorneys, and auditors should all ask the hard questions in order to ensure that companies not only follow the rules, but also uphold the principles behind them, my question to you is how you believe it’s best for Chief Reputation Risk Officers to proactively steer their companies through the global outrage battlefield when their operations are largely “distributed operations” – e.g. joint ventures, licensees, agents etc. operating in largely unregulated markets or in markets where Group Ethics and Conduct Standards cannot be easily enforced.

Peter, given that these emerging markets are often the ones fueling growth for our global enterprises, the answer clearly isn’t just don’t operate there. I know our peers would be grateful to hear your expert opinion.

Readers unfamiliar with the Enron scandal of 2001 might want to read the Wikipedia articles on:

Leesa, in a nutshell, Enron looked like a hugely successful corporate giant making gargantuan profits out of innovative strategies of energy trading. But the company’s profits turned out to be illusory, a product of “innovative” and thoroughly dishonest financial recordkeeping that hid the company’s losses from shareholders, regulators, and everyone else – while top company officials including Fastow siphoned off millions of dollars for themselves. When the house of cards started to unravel, Enron’s share price plummeted to near-zero, leading to what was then the biggest corporate bankruptcy in history. Tens of thousands of employees lost their jobs and pensions. Enron’s auditor, the Arthur Andersen company, had okayed the creative bookkeeping; it also went out of business after losing its public accountancy license for shredding Enron documents. Fastow was a cooperative witness in civil and criminal cases against his former colleagues, so he received a comparatively light sentence of six years in prison.

Your question to me isn’t really about Fastow or Enron. You want my take on how to manage reputation and avoid outrage in a decentralized organization that does business in many different cultures with different legal systems, different ethical norms, and different outrage hot buttons.

I’ll get to that, but first I want to address what you say about Enron and Fastow, particularly that Fastow “was not jailed for breaking the law, but rather for abusing the principle of law.” You add:

Fastow observed that it is often the ambiguity and complexity of laws and regulations that breed opportunities for loopholes and problematic decisions. In his time as Chief Loophole Officer, these were Enron bonusable events, not corporate ethics or conduct violations.

Even leaving aside the added complications that result from decentralized operations in a single global economy that is far from a single global culture, you’re raising a very tough issue: the porous boundaries separating – but not really separating – law, ethics, and outrage.

---

If you enjoyed reading this post by Dr. Peter Sandman, please read the others in the 5 part series.

All Posts
×

Almost done…

We just sent you an email. Please click the link in the email to confirm your subscription!

OKSubscriptions powered by Strikingly