Thursday, November 13, 2003

Students warned to be vigilant

Former Enron executive saw unethical practices

By Cliff Peale
The Cincinnati Enquirer

Students going into corporate America should pick companies that not only write ethics rules, but also get rid of unethical workers.

That was the central message Wednesday from Sherron Watkins, the whistleblower who first warned Enron Corp.'s CEO in August 2001 that the energy trader could "implode in a wave of accounting scandals."

Enron did just that, declaring bankruptcy later that year, and the Houston-based energy company has become the poster boy for greed and fraud in corporate America. Watkins became one of three named by Time magazine as 2002 Persons of the Year.

Speaking to about 1,000 businesspeople and students at the Cintas Center at Xavier University, Watkins mixed memories of Enron collapse with advice to the next generation of corporate executives.

"When I think back on my behavior, I should have recognized it (accounting fraud) earlier," she said. "But I'm happy that when I saw aggressive behavior on the accounting end, I got away from it.

"My warning to students is, don't work in a structure that makes you feel uncomfortable," she added. "When your gut is telling you that something seems off, don't fall into that group-think mentality. Because I think that's what happened at Enron."

The Enron collapse, along with those at auditor Arthur Andersen and WorldCom Inc., set the stage for a wave of corporate scandals that has produced billions of dollars in market losses, criminal indictments of corporate executives and stricter federal regulation on corporate behavior.

Sean Murray, a freshman studying business at Xavier, said Watkins had "given us something to think about."

"I didn't think much about it before," Murray said. "But now that she's brought up some good points, I probably will, as I get closer to job-searching."

Watkins, who has co-written a book, Power Failure, about Enron's collapse, said the new regulations might curb outright fraud. But she added that astronomical CEO salaries and resistance to some changes show that much is left to be done.

Some of that skepticism of the new rules already has shown. For example, Cintas Corp. CEO Bob Kohlhepp, in an ethics panel before Xavier students in May, said the Sarbanes-Oxley corporate governance law could reduce risk-taking by corporations.

"Maybe 50 to 70 percent of that law is just a bunch of gyrations that people are going through to protect themselves," Kohlhepp said then.

Watkins said greedy CEOs "are really making investors feel like the game is rigged."

But the bulk of her talk was devoted to the Enron story. She said that by the time of her now-famous memo in August 2001, she had already transferred from at least one other Enron job because she was uncomfortable with aggressive accounting.

She was presented with a spreadsheet showing the now-famous partnerships, which Enron was using to keep hundreds of millions of dollars in debt off its balance sheet.

Only a few months later, Enron declared bankruptcy. Watkins said then-CEO Kenneth Lay asked Enron's lawyers whether he should fire the whistleblower.

"If Enron had survived, I clearly didn't have a future at the company," she said. "I was just lucky it imploded too fast to get rid of me."


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