February 8, 2003
Watkins, Fellow Leaders Describe Systemic
Failure of Business Ethics
In case of Enron, says Watkins, the emperor had no clothes.
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AUSTIN, TX (Feb. 8) - Trying to help business students understand the worst business ethics scandal of our time, former Enron vice president and whistleblower Sherron Watkins today alluded to the well-known children's fable, "The Emperor's New Clothes."
Watkins spoke at an ethics symposium for business honors students at the University of Texas McCombs School of Business. She joined experts from Wall Street, securities law, and philosophy, presenting a multi-faceted analysis of the ethical challenges that students will face when they become business leaders.
In Watkins' version of the ancient emperor's tale, former Enron CEO Ken Lay was like the ruler who "was focused only on his appearance and not on his kingdom." Ex-CFO Andy Fastow and former President and CEO Jeffrey Skilling were the swindlers who created the culture of deception and intimidation that rendered secondary ministers afraid to speak the truth.
Watkins compared Skilling's complex charts and financial transactions to the magical cloth that everyone was supposed to see on the emperor. Watkins said she tried to expose fraudulent financial transactions when she wrote her now famous memo to Lay questioning Enron's accounting practices. Senior managers were afraid to question the "magical cloth," for fear they appear "stupid or unfit for office," like the ministers in the fable who refused to admit that the emperor wears no clothes.
The root causes of Enron's failure, however, as Watkins and others described them, were much larger than the actions of individual actors.
"What happened at Enron, in my opinion, was not just the collapse of an energy trading giant, but the colossal failure of watchdog groups that are supposed to oversee business," Watkins told a crowd of 230 students, professors, and friends of the McCombs School.
Other speakers included William Powers, dean of the University of Texas School of Law and author of the "Power's Report" detailing Enron's conflicts of interest; Tom Ward, senior managing director of Bear Stearns and graduate of the McCombs MBA; and Paul Woodruff, a professor of philosophy at the university widely cited for his work in ethics.
The symposium was the brainchild of undergraduates in the Business Honors Program at the University of Texas. Students chose ethics as the topic of their annual symposium last winter. This is the second annual symposium.
Select quotations
A selection of quotations from the speakers and guests follows.
Thurmond Woodard, chief ethics officer, VP of global diversity, Dell Computer Corp:
"At home-grown Dell (founded in Austin in 1984) ethics starts with individual responsibility. Ethics is who we are and what we are. As the philosopher Spike Lee says, 'We gotta do the right thing.'"
"Dell's code of conduct is 'Winning Through Integrity'. The ethical issues that are important to us do not shift or move. They are in place for the long term. That is what we refer to as the 'soul of Dell.' We are not just about increasing profits and market share; we have to deliver on a number of things, not just the numbers. We all have the desire to be No.1, but to do it with integrity. If we do that without integrity, we are no longer winning."
University of Texas School of Law Dean William Powers:
"We all make 'little' compromises in life. The issue is to recognize it. In the case of Enron, what (corporate executives) did was off the scale in terms of the conflicts of interest. The major question we sought to answer in the report was was it fair for Enron to have Andy Fastow (indicted former Enron president) be on the other end of transactions? The Bible says you can't serve two masters. There is no way you could not have a conflict of interest by wearing two hats, one on behalf of Enron and one doing business with Enron at the same time."
"In the end, I believe that what caused Enron to collapse in such a spectacular manner has to do with its corporate character and virtues. It had instilled a 'We can do anything' aura, even if that meant setting aside honesty, the accuracy of its books and integrity."
Michael Blue, managing partner, Ernst & Young, Austin:
"One has to keep in mind that the United States has more rules and laws on corporate governance than most any other country in the world. But it is not just enough for the business person or the decision maker to look for the 'nod' so that they can later point their finger and say 'I got it on paper that this was OK to do, so don't blame me.' You can't just take the attitude that, 'Well, I got the auditor to sign off on it, so that absolves me.' That kind of attitude is not going to stop the things that have already happened from happening again."
Tom Ward, senior managing director, Bear-Stearns & Co., New York City:
"The role of Wall Street is pretty straight-forward: It takes money from companies that are not growing and penalizes them by giving money to companies that are growing. Because of (the corporate scandals) the average investor on Main St. right now is penalizing Wall St. by withholding his investment, because of a lack of confidence in the market. That is hurting is quite a bit."
"Right now, the view of Wall Street -- where I have been for 20 years after growing up in Midland, Texas -- is of a vast gray area that should not be gray. Misdeeds have been done, and on a massive scale. We are not talking about cheating on a quiz, we are talking about (in the case of Enron) 10,000 people being out of work, in some cases having their entire future and retirement wiped out. Sometimes it is hard for me to call my mom and explain what it is I do on Wall Street. And yet while the street has its ethics problems, it has done good for hundreds of millions of people."
"It is not illegal to make obscene amounts of money. It is not about making money, it is HOW the money is made. Where are the controls, the ethics? Right now, what we are all struggling with is the need to re-define the line of what is the right thing to do. Too many of us seem to have been blinded by greed. We must change the culture that says that whatever you do is OK, as long as you get away with it. And the challenge is to stop focusing simply on Return on Equity and profits, even though that is where up to half of your salary is coming from, because in the end, public companies have not just the responsibility to make a profit for their stockholders, but to act in a socially responsible manner."
For information on specific programs at the McCombs School, consult our contacts page. For media information, contact the Communications Director by phone at 512-471-3314 or by email at CommunicationsDirector@mccombs.utexas.edu.
