Return to site


I had the opportunity this week to have dinner with Andrew Fastow, former CFO of Enron. We were speaking on a panel together at the "Financials hidden in plain Site" conference led by Corporate Governance Board Asia. It was supported by the Malaysian Institute of Accountants, BoardRoom, MINDA and ACCA in Kuala Lumpur.

You may recall Enron - the darling of America's energy industry that during its heights had a market cap that exceeded $60 billion. It left behind a human cost that still has shocks today - 29,000 people lost their jobs and medical insurance. The employee who worked an honest life’s work on an average wage, having invested their life’s pension in the company, walked away with only $4,500 in severance and saw their 300K pension fund transformed into only $1,200. Investors lost 1.2B in pension funds and retirees lost just over $2B... Many people took their own lives and the financial impact destroyed families. The 85,000 strong Audit Firm Arthur Anderson imploded... all while Enron's top executives paid themselves $55M in bonuses.

Andrew Fastow, was the Chief Financial Officer of Enron Corp from 1998-2001. In 2004 he pled guilty to two counts of securities fraud and was sentenced to 6 years in federal prison. He completed his sentence in 2011 and now consults with Directors, Attorneys and Hedge Funds on how best to avoid critical finance, accounting compensation and cultural issues.

Unfortunately, despite today's more regulated and enlightened business environment, we continue to witness Enron-esque failures of corporate governance. Fastow observes that the often ambiguous and complexity of laws and regulations breed opportunities for loop-holes and problematic decisions. Corporate Directors, Management, Attorneys, and Auditors should all ask the hard questions in order to ensure that companies do not only follow the rules, but also uphold the principles behind them. Paradoxically, Enron’s mantra was “Ask Why?”.

So, how can we avoid another Enron?

Fastow advised the audience of Accountants, Auditors, Risk Management and Compliance Executives to seriously examine 3 areas of our companies:

1. Aggressive Accounting Practices and use of Loopholes

2. Assess Cultural Risks

3. Align Incentives to Sustainability

While nothing Andrew has shared is new, the reality is that few companies have successfully managed to address all of these issues on a global scale. On the investor side, Environmental, Social and Governance (ESG) intelligence agencies such as Bloomberg, MSCI Ratings, RepRisk and Sustainalytics already assess these issues and feed the data on listed companies straight to their financial data terminals. In addition, almost all listed companies receive copies of this information from their Corporate Secretary, Chief Risk Officers or Heads of CSR.

So has anything changed since Enron?

Looking around us today, we see many Companies with "Enron-esque" characteristics. If we simply take "Aggressive Accounting" as an example, a recent review of portfolios across the 5 largest markets in Asia had a sizeable bucket of companies in this category (GMI Ratings/MSCI ESG Research). While it's easy enough for a responsible investor to exclude them from one's investment portfolio, unless the investor engages with the Company and communicates publicly the reasons why it is not investing, little will change.

Similarly, when it comes to the tone at the top, there are still many listed Companies that have non-independent Directors, conflicts of interest or poor corporate governance.

Clearly regulation is not the only answer. With the rapid pace of business model transformation, digital disruption and technologies, coupled with the interconnectedness of risks, this will only result in there being more complex rules, an untenable level of compliance overhead and even more loopholes.

It's no longer only about "what you do"

We are bombarded today on an almost daily basis with examples of companies or their Executives who have taken shortcuts to an improved bottom line. As more and more of these situations turn out disastrously, the public outcry gets louder and regulators step in to ensure both the Directors and Senior Leaders are held accountable for their actions.

Back in Enron's peak in 2001, reputation was based "on what you do" - as long as your economic performance, products and services and innovation roadmap were on track, you would be rewarded by investor advocacy and support.

With the advent of social media, companies have moved beyond management of the "shareholder" to the management of "stakeholders". This is an important change which aligns to the latest RepTrak Research that illustrates that stakeholders are no longer only concerned about "what you do", but rather, "who you are". Today leadership, governance and how you treat your employees are dominant reputation drivers.

Couple that with the clear fact that it is no longer simply acceptable to only "follow the rules". Fastow followed the rules, but through the use of loopholes, abused the "principle" of the rule. For this, he and his family paid the price.


My mentor Mike Love, was former Advisor to Margaret Thatcher and Former Comms Director of BT, Microsoft and McDonald's. In his recent presentation at UCL he recommends that every Executive should know their LEADS:

  1. Is it Legal? (Both locally & internationally),
  2. Is it Ethical (Is it regarded as unethical behavior by stakeholders even if legal?),
  3. Is it Acceptable (Is it criticized by some, but regarded as acceptable by most who matter most),
  4. Is it Defensible (Could we defend our action if this became front page news?) and
  5. Is it Sensible - Even if it failed all or some of the EAD criteria - does it still make good business sense?”

As a start, perhaps we should all adopt Enron's old catch cry, "Ask "why?" and take Mike's advice and apply our "LEADS".



On a personal note, Andrew Fastow, the man I met, was a shadow of the picture painted in the Enron documentary "The Smartest Man in the Room". Andrew apologized many times throughout his presentation for the damage his actions had caused, for the families that had suffered, the lives that have been lost, and for the impact Enron's insolvency has had on innocent people. He took responsibility for his actions and made the point on multiple occasions, that in his explanations of the situation he was by no means deferring blame to any other person. It was important to him that his children saw their father take accountability for his actions, and that his wife heard him acknowledge the hardships that had resulted for his family. He was also committed to a public redemptive journey so that he could help Directors, Investors and Company leaders avoid the very mistakes that he had made. With the shockwaves of Enron still present in the minds of people today, I observed that it takes a very strong person to relive a public journey of hostility and vilification, over and over again. This is a man now working hard through education and awareness to "make a difference".


Leesa Soulodre is the Chief Reputation Risk Officer and Managing Partner of RL Expert Group.

All Posts

Almost done…

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