Topic: Business & Commercial

Not an Ethics Hero: Sherron Watkins

Sherron Watkins is back in the news again. She was the Enron V.P. who wrote a famous memo to Ken Lay warning him about the scandalous chickens coming home to roost, and she was recently called to testify against her former boss, who is now being tried for his role in the epic corporate mess that unraveled in 2002. Watkins parlayed her actions into a career as a corporate compliance guru and managed to get Time Magazine’s 2002 “Person of the Year” honor along with two other whistleblowers.

But Sherron Watkins was not a whistleblower. Her memo to Lay, while indeed warning him of problems, contained sections like this: “Has Enron become a risky place to work? For those of us who didn’t get rich over the last few years, can we afford to stay?” And this: “We are under too much scrutiny and there are probably one or two disgruntled “redeployed” employees who know enough about the “funny” accounting to get us in trouble.” And especially this: “Don’t you think their smartest people are poring over that footnote disclosure right now? I can just hear the discussions–“it looks like they booked a $500 million gain from this related party company and I think, from all the undecipherable half-page on Enron’s contingent contributions to this related party entity, I think the related party entity is capitalized with Enron stock.” . . . . . “No, no, no, you must have it all wrong, it can’t be that, that’s just too bad, too fraudulent, surely AA & Co. wouldn’t let them get away with that?” “Go back to the drawing board, it’s got to be something else. But find it!” . . . . . “Hey, just in case you might be right, try and find some insiders or ‘redeployed’ former employees to validate your theory.”

These are the words of a worried employee trying to make sure a risky scam can be covered up or backed away from, not someone blowing the whistle on wrongdoing. In fact, the word “wrong” only appears once in her entire 2400 word memorandum. Contrary to popular belief, Watkins didn’t resign from Enron once she knew that Lay was doing nothing about the collapse she knew was coming. She didn’t make an effort to correct Lay’s reassurances to employees while he and others were dumping their stock, or try to warn stockholders. She waited until the whole situation blew up, then said, “I told you so.” As columnist Dan Ackman wrote in 2002, a whistleblower blows a whistle to call the police when the bank is being robbed. But what Watkins did “was write a memo to the bank robber (Mr. Lay) suggesting he was about to be caught and warning him to watch out.”

We do our ethical standards damage when we declare that such conduct is ethically remarkable. What Watkins did is the bare minimum any employee should do when she believes her company is about to make a catastrophic error: tell management. It is the next step, taking the risk of alerting the potential victims and authorities about a situation before all the damage is done that takes guts, principle, and timely action. Sherron Watkins didn’t do that, and calling her a whistleblowing hero is just an insult to those who are.

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