Finding the culprits in Enron

You’d think that writing an ethics column about Enron would be easy, but it’s not. In fact, the jumble of ethical malfeasance is so overwhelming that it’s a lot like finally going into the basement after the floodwaters subside. You find yourself standing waist-deep in junk and have no idea where to start.

The temptation is all too great to point fingers at individuals and start passing out blame as if the guilty parties had invented the system that led to the debacle. There is no lack of candidates. Ken “Kenny Boy” Lay comes to mind right away, along with scores of Enron directors and executives. Any number of politicians are in the running. And the folks at Arthur Andersen are under the microscope too.

The courts, congressional hearings, and public opinion will sort most of this out — for better or worse — but it would be foolish and shortsighted to make this simply a case of the personal failure of a few people. The ethical problems run wider and deeper. Enron is, to use a hackneyed phrase, only the tip of the iceberg.

The real culprits are systemic. If this hadn’t happened at Enron, it would have occurred somewhere else — and probably has before — although few corporations have the political clout and connections that Enron enjoyed. The Enron collapse, in and of itself, along with the devastating financial loss to tens of thousands of working people, may have been just part of the “genius of capitalism” as Treasury Secretary Paul O’Neill said in a particularly insensitive remark. But its causes in the political realm and effects across a wide swath of the country’s economy would be hard to match in any other corporate failure.

So who are the real culprits?

1. Corporate ethics. As I’ve explained in this space before, corporations, although considered by the law to be the same as natural persons, have no moral motivation. Their only motivation is to make money for the investors. Those who must provide the moral agency for publicly held corporations — directors, stockholders, and employees — will ultimately serve the profit motive. To count on them to put ethics ahead of profits over the long haul is a foolish hope. The corporation won’t tolerate continuing losses, and if it does, the market will punish it.

2. Corporate culture. Who in the corporation can carry the flag for ethical behavior over profit? In Enron, apparently, the answer is no one. In fact, most corporate cultures discourage it. To ask the tough questions, rather than join in the rah-rah attitude of meetings-turned-pep-rallies, brands someone as “not a team player” or “not a can-do” person. Enron regularly purged a certain percentage of employees as a matter of policy. We have to assume that asking the wrong questions was not a survival tactic. In this, Enron wouldn’t be far different from most other organizations.

Although we do have evidence that at least some people raised warnings, this was only at the very end. And in the final analysis, once the scope of the misbehavior became evident, no one contacted outside authorities to report it. The intramural complaints, while taking some measure of “guts,” were much like the getaway car driver asking, “Gee boss, do you think this is such a good idea?” but continuing to drive instead of calling the police.

3. Anti-regulatory mania. The idea of large, wealthy, powerful “persons” lacking in ethical motivation — corporations — should scare us, especially when the human people who are supposed to provide the motivation are caught up in the corporate culture to the extent that they will put the corporate goals ahead of everything else. The only countervailing force is regulation from outside, and the logical choice for that is the same government that creates the corporation in the first place. Instead, we seem to have gone the other way.

What regulations we still have are toothless or are administered by weary civil servants whose efforts have been undercut by a “business-friendly” Congress. You can add to the mix those government regulators whose ultimate goal is to curry such favor with the businesses being regulated that they will be hired by that same company at a handsome salary later on. This happened with Enron but is not unusual. It happens all the time.

4. Blurred lines. These are the dividing lines that should exist between government and industry. Granted, there has always been a close connection between the business and political worlds but never to the extent we see with Enron and the current administration. According to all reports, at least 25 people in the upper levels of the executive branch have close personal or financial ties to the company, an unprecedented concentration. In addition, it’s becoming clear that the White House was using Enron as an employment agency, arranging sinecures at Enron for those to whom the administration owed favors.

5. Corrosive effects of money. Enron was more than generous when buying political influence. Hardly anyone escaped the company’s largesse without at least $500 in contributions, but that was chicken feed compared to the money collected by the real movers and shakers. And the money was apparently well spent because the administration’s secretive energy policy was a veritable grab bag of Enron perks and the inaction in Congress was depressing.

Despite the fact the company spread the cash on both sides of the aisle, it’s not quite the bipartisan feeding frenzy that some commentators would have us believe. Republicans got about three times what Democrats received. But no matter, the bipartisan effect is corrosive. The Congress’ credibility in any investigation is compromised. We have seen the same effect at the Department of Justice, where numerous prosecutors, as well as the Attorney General, have had to recuse themselves from the case because of their entanglements.

6. Accounting sleight of hand. With more than 900 dummy corporations set up off-shore, nearly 800 of them in the Cayman Islands alone, Enron was able to hide profits to avoid taxes and to bury debt to make the company’s stock more attractive. This was used to hoodwink analysts and investors alike. Regulators apparently weren’t watching this shell game, or if they were, they weren’t reporting any irregularities.

7. The system. This is the kingpin. Any one of the factors listed above is serious and should definitely be corrected, but together they produce a synergistic reaction, in which the effect is greater than the sum of the parts. That effect is known as “the system,” and we have a system that’s broken and desperately needs to be corrected at its very core.

The danger in analyzing this particular scandal is that we can be misled by the obvious. There are some actions that are so egregious — the document shredding at Arthur Andersen and Enron, for example — that we may focus on them and ignore the fact that the entire system is corrupted and corrupting.

Certainly, we should hold individuals accountable for what they did wrong, and we probably will punish some, although many others will wiggle away, hiding behind the skirts of high-priced lawyers and political connections. But we shouldn’t lose sight of the fact that they did what they did because the current system allowed it. In fact, the system encouraged it.

The system is the real culprit. The individuals involved, while still wrongdoers, were only accomplices.

Do you see any other culprits? Share that with other readers in our InfoWorld Ethics Matters forum at www.infoworld.com/forums/ethics , or drop me a line at ethics_matters@infoworld.com.