Lynn Brewer on Enron and Ethics

Lynn Brewer is the author of “Confessions Of An Enron Executive: A Whistleblower’s Story” and shared these comments at the Texas Tech University Ethics Day on April 6, 2006. Lynn generously gave permission for her presentation to be recorded and shared as a podcast, available on the Texas Tech University College of Education podcast channel.

Intro by TTU President Smith:
For 9 years of my life I worked for the CIA, keeping secrets
– one joke: if you have 3 members of the Hell’s angels, they can keep a secret forever only if 2 of them are dead
– other joke was: if you have 3 CIA agents, they can keep a secret forever if none of them are dead
– think about that

Lynn’s comments:

Went from being asked to overlook to told what was OK for the CEOs was not OK for me
– realized these guys were buying up power in one place and shipping it different places
– California said they needed “decongestion” of power
– Enron was making more off decongesting fees than trading power

I went to the head of public relations

Edgar is electronic reporting system all public companies use
– to violate security on SES
– offered letter or resignation, instead gave her a promotion to NW for Enron Broadband Services
– money was no object, this was technology and we were in the bubble

Enron kept getting into these businesses because they could create these forward price curves
– we had lots of people look at
– we were falsifying the future likely value of things
– if the markets don’t produce what you are predicting, then you have to…

There were no switches, and were going to create a new internet so you could stream MTV
– there were just 2 competitors
– both were going out of business: 1 was laying off lots of employees, the other

To have liquidity in a market, you have to trade
– I told my boss his predications about $40 more per share was not accurate, his response was

I realized this went all the way up to the top, so I did what
– I called the employee assistance program
– I said I have evidence of bank fraud and espionage on the part of Enron ….
– the women said: ma’am, because our fees our paid by Enron I can’t take your call, you’ll have to get a private lawyer

So I submitted my letter of resignation
Left
Heard some stuff on the radio, so I sent an email
Then a syndicated radio talk show called, and I confessed my sins
The radio person said to go to the gov’t

Called a Senator, his staffers said

Enron was bankrupt 3 years before it filed for protection
– this is a 2 part story about those who refused to tell the truth, and also those who refused to listen

Picture of iceberg
– look at corporations and organizations differently
– Enron is the extreme example
– organizations really have 2 parts: the above the waterline
– 2/3rds of what is moving that organization forward or backward are the people who are below the waterline

As a new organizational employee you will be below the waterline for some time

Some COEs
– we had values! (respect, integrity, communication, excellence)
– from leadership, tone was set by Ken Lay (CEO) as integrity
– Jeff Skilling: said don’t cut corners

Average age of employees at enron was 33, tenure in 3 years, you would have 4 positions generally during that time, there was a lot of churning

Enron lost $90 billion in 30 days

Grad students at Cornell: May 5, 1988
– report recommending sell on Enron’s stock
– said Enron may be manipulating their stock value and earnings
– there is no gaining back when you lose value

From that point Enron stock would go up 1400%

I say Enron employees are not victims
– they chose to invest 100% of their retirement in Enron as employees

Jeff said in 2000 annual report
– company reached a record $1.3 billion in 2000
– READ THE annual report written by the CEO for any company you are going to work for or are considering buying, etc.
– Nothing indicated the discrepancy between that figure and….

Below the Bottom Line
– you have a culture in the organization
– you either define it, or it will define you, it is a living, breathing organism based on the values of the employees that make it up

Lynn founded “Integrity Institute”
– attached a CYA memo to the email
– I know that it went on, and I didn’t do

What did the board of directors do?
= Enron’s internal hotline incident reports
– there were thousands of people in this organization blowing the whistle, and 30% of them alleged criminal activities, 40% were fraud

A measure of of success is the measure of your risk!
– 2001: 6,400 whistleblowing reports made every month to the SEC the year Enron imploded

I say young people are more likely to go to work for an Enron or not

Today in 2004: There are 40,000 whistleblowing reports made every month to the SEC
– number of companies is going down, number of whistleblowing reports is going up

[MY THOUGHT: THIS IS VERY SCARY]

You are more likely today to find out that things are wrong in your company from the SEC than your own employees
– these stats tell me that employees don’t trust their leadership

Right and Wrong are Not Black and White
– most of us are and were pretty good people
– we didn’t go to work to defraud people
– they didn’t say: “cook the books” they said “find me the revenue” or we’ll find someone to replace you

Over time in companies, culture changes people
– so over time, I was becoming someone I didn’t like in Enron

If enough people who are positive, trustworthy, and have integrity leave the organization, all you have left are the dark people
– they didn’t want the people who would stand up for injustice

As you go through life, decisions are not about black and white
– they are really about the grey between black and white
– as you begin to see things happening in organizations, you begin to play tricks with yourself and rationalize things

We are moving at such a fast pace in our society, deals of Enron were closed at the 11th hour before attorneys could do the research they needed to do
– the majority of people in corporations are people

Short clip from “Vertical Limit”
– father and children faced with a dilemma
– cut the rope and kill the dad, or not?

the way we describe risk is as something you dont’ expect but you have to plan for
– in Enron, they would do the deals and then manage the risks later

Tulane professors: Art B.
” Good people do horrendous things in the workplace because the don’t see the situation as an ethical dilemma. They see it as a business problem to be solved.”

At Enron, where we couldn’t change the rules we broke them

This next clip is from Friends

If you don’t know the answer, just admit you don’t know the answer and then work to find the answer
– most of these cases are about THE COVERUP
– not about the wrong that was done, about what

Change in federal sentencing guidelines, this 38 year old married and with a baby
– did a structured finance deal with Enron, but there was no legitmate business purpose for doing that deal except boosting revenue
– for that he was sentenced for 24 years in prison with no chance of parole

Andy pled guilty before new sentencing guidelines went in

From Jeff Immelt, CEO of General Electric, successor to Jack Welch: “Our concern that keeps me up at night is that among the 300,000-plus GE employees worldwide, there are a handful who choose to ignore our code of ethics. I would be naive to assume a few bad apples don’t exist in our midst.”

Do not assume that innovation is a good thing, regulation in some cases protects us from ourselves

There is some sort of fraud, more than likely, going on in every organization
– generally you have about 6% of employees reporting wrongdoing, if you have more or less than you should be really concerned

Now clip from “The Apprentice”
– this was very much like being inside Enron
– every day in the board room of Enron was like this

understand this stuff is going on all around us

Beliefs, Behaviors and Boundaries
– we have boundaries in our lives: medians in the middle of the road, etc
– we are supposed to drive down the middle of the lane
– we have mandated speeding laws, etc.

we have VOLUNTARY boundaries as well as MANDATED boundaries
– we have found that for young people, their brains develop more slowly

Beliefs and Behaviors, and objectives
– obstacles come up (we call them “market forces” in business)

First thing that goes is your value system (you are a little drunk but decide to still drive home)
– you know you aren’t doing well driving but you keep going
– regulation is there to save you from yourself

Without accountants, good boards of directors, etc– things can become corrupt
– they can go off course

Short film clip showing how fast things can go bad

showed graph of companies that lost billions in a short number of days

Don’t go to work for a company that has a 63 page vision statement
– don’t just go to work for the most money
– most of these were not startups, these are the companies we invest our futures in
– we have to ask ourselves, “Is there a little bit of Enron in all of us?”

absolutely, the only thing that keeps us on the straight and narrow is that which keeps us is the voice inside us
– I love to call it my GPS

closing analogy: JFK Jr.
– certified licensed pilot
– got warning on way up to a wedding about an incoming storm
– does not pay heed to that, begins to fly
– at some point in time had instruments that would tell him if he was upside down or not, and he decided he knew better– then 3 people were dead

we do have internal instrumentation
– that is the only thing that will keep you out of prison

suggestion: create a new reality for yourself, if there are not great things going on in that company, then leave that company
– most of the misdeeds that happen are a result of shame

Either we are too ashamed to admit we made a mistake, or someone will shame us into doing something we should not

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