Sherron Watkins, one of the world's best known whistleblowers, takes a wry view of corporate morality.
"I don't think Enron is that unusual," she says of one of the biggest corporate scandals of recent years. "After all, we have a chief executive class which act like dictators of small Latin American countries."
Immaculately dressed in a woollen suit, she still looks the part of an ambitious executive, sitting in the genteel offices of her lawyer in Houston, the home city of Enron, once the seventh biggest company in America.
The woman who made global headlines for telling her boss, Ken Lay, that Enron was mired in accounting fraud is now, after more than a year in the media spotlight, happy to talk about her life at the firm. "The money was good, the bonuses and the stock options. And the trips were always top notch," she says.
Her company, the world's biggest energy trader, often won awards for innovation. Gradually it became clear that some of its accounting practices were more than innovative.
In December 2001, Enron filed the biggest US bankruptcy case to date. Thousands of workers lost their jobs and their pensions invested in its shares, and other investors lost billions of dollars.
Back in 1996, Watkins was working with Andrew Fastow, the chief financial officer now charged with fraud, when she began to witness aggressive accounting. "I was starting to see Andy Fastow cross the line," she says, claiming he asked her to lie to one of Enron's partners about an investment. "It should have been a huge warning flag," she admits. It merely prompted her to move to a different part of the empire, Enron International, where she later became a vice-president.
All this time, Harvard graduate Jeffrey Skilling had been growing in influence at Enron, reinventing what it did for a living to include power trading, selling retail electricity and even the provision of broadband internet services. In 2001 he became chief executive officer. "Jeff Skilling was incredibly charismatic," she explains, "but very, very intimidating. He can really cut people off at the knees. You were certain he was just the brightest guy around, but in hindsight I really feel we were somewhat like cult followers."
By mid-2001, Watkins was working for Fastow again. This time, she stumbled across evidence of massive fraud.
When the penny dropped
She was looking at an Excel spreadsheet listing 200 assets which Enron wanted to sell to raise cash. Against half a dozen, she saw the name Raptor. These were complex, off the books partnerships used to hedge assets. "I was seeing hundreds of millions of dollars in the loss column," she recalls. "I mean you couldn't do the math, it didn't work."
She questioned other staff, was shown stupefyingly complex charts of boxes and arrows, and at last the penny dropped. She realised these Raptor structures were empty, shell companies capitalised with nothing but a promise of Enron stock. They were hiding debt.
"When I saw that I just knew this was accounting fraud. It's outrageous. I thought, I have got to get out of here. I can't work for a company that is doing this. I'm gonna work up the guts, if I can, to confront Jeffrey Skilling on my last day." But soon after, Skilling resigned unexpectedly, for what he said were personal reasons. "He beat me out the door," she now says.
So Watkins sent an anonymous memo to the man who'd taken the helm, the founder and chairman, Kenneth Lay. Touchingly, she showed it to her mother first, who corrected it. The memo details her eerily prescient fears that Enron might "implode in a wave of accounting scandals". Soon after, she met Lay to convey her fears face to face. She showed him comments from a colleague close to the Raptor transactions, who'd said: "I know it would be devastating for all of us, but sometimes I wish we would get caught, we're such a crooked company." Watkins pauses. "When Ken Lay read that, he actually winced, you know, a crooked company, how could that possibly be?"
Enron began an inquiry, but it failed to use independent investigators and her claims were largely dismissed. Months later, it revealed the black hole in its earnings, and confidence in the company evaporated. "My warnings came too little, too late to save Enron."
Some former colleagues take a dim view of her actions, arguing she raised concerns only when it was clear the ship was going down, and they point out that she sold Enron stock options worth $17,000 shortly after talking to Ken Lay. That's minimal, compared to sell-offs by other executives.
Others claim that what she did doesn't even qualify as true whistleblowing, because she never took her concerns outside the company, to the financial regulator or a third party. Why not? She clears her throat at what's obviously a recurring question.
"When a company cooks the books, it rarely has a chance of surviving, but to do that it has to come clean itself, to admit its problems and re-state its financials. I felt here was Enron's chance to come clean."
Soon after Enron's bankruptcy, her part in its drama suddenly came to light. In January 2002, a Congressional committee published her memo to Ken Lay. Overnight, massed ranks of TV and press reporters beat a path to her door in Houston. "It was mind-boggling," she recalls, "but in some respects it was vindication that I had been right."
There was an even bigger media circus to come. Last February, she testified before the Congress and Senate. Jeffrey Skilling gave evidence beside her, maintaining he knew nothing of Enron's troubles when he resigned.
She believes Skilling was "hoping his old intimidatory tactics would work; he would give me the evil eye and I would not give my opinion to Congress". If so, it didn't work.
Was he telling the truth about how little he knew? She is unbending. "I think that was not true. He knew the future for Enron was looking bleak. I think he could look down the road and say, oops, I don't have another rabbit to pull out of the hat, these Raptor structures are going to explode on me in a couple of years and I've gotta get outta here."
The criminal investigation into the scandal goes on. A number of former executives have been charged with offences including fraud, among their number Andrew Fastow. If convicted, he faces hundreds of years in jail. He has pleaded not guilty. But Jeffrey Skilling and Kenneth Lay have not been indicted, to the consternation of many former employees and investors. I asked Watkins what she expects to happen to them.
She measures her words carefully. "I don't think Ken Lay in the long term will be indicted. I think it is likely they will indict Jeffrey Skilling."
Rumours have been circulating in Houston that a key executive is about to plead guilty and cooperate with prosecutors investigating Skilling.
Watkins now gives lectures about corporate ethics. She's co-written a book about Enron, and is launching a company offering the services of older independent directors to sit on boards.
The Ken Lay defence
In the end, what did her actions really achieve? She sits back and considers. "It may help convict some people," she hazards, "but I think it's really more helpful in the legislation that got passed."
Members of Congress were shocked by what's known as "the Ken Lay defence". Watkins describes it thus: "Sorry, I was asleep at the switch, out to lunch, didn't know what was happening." As a result, the 2002 Sarbanes Oxley Act requires CEOs and CFOs to certify financial accounts are true. If they're found to be lying, they face up to 20 years in jail.
She takes a pugnacious pleasure in explaining why this could be a great motivator. "Monetary fines don't do it. If you've made a hundred million dollars and you're fined $25m, you're still filthy rich. To go to jail scares these guys to death. Standing in a cafeteria line for food, communal showers? It will change them forever."
It's not clear how much the new legislation owes to directly to Watkins. And in any case, institutional investors and other critics feel the new law falls far short of what's needed. But there is one thing her whistleblowing actions certainly achieved. They changed her own life, forever.
The CV
Born Tomball, Texas, August 28, 1959
Education Accountancy at the University of Texas
Career : Auditor, Arthur Andersen, in Houston and New York, 1982-90; portfolio manager, MG Trade Finance Corp, New York, 1990-93; joined Enron, 1993; moved to Enron International, 1997; became vice-president, 1998; joined Enron Broadband Services, 2000; returned to work for Andrew Fastow, discovered $700m losses hidden in Raptor partnerships and revealed her findings to Ken Lay, summer 2001; resigned from Enron, 2002
Family Married, with one daughter
http://www.guardian.co.uk/business/story/0,3604,982216,00.html
"I don't think Enron is that unusual," she says of one of the biggest corporate scandals of recent years. "After all, we have a chief executive class which act like dictators of small Latin American countries."
Immaculately dressed in a woollen suit, she still looks the part of an ambitious executive, sitting in the genteel offices of her lawyer in Houston, the home city of Enron, once the seventh biggest company in America.
The woman who made global headlines for telling her boss, Ken Lay, that Enron was mired in accounting fraud is now, after more than a year in the media spotlight, happy to talk about her life at the firm. "The money was good, the bonuses and the stock options. And the trips were always top notch," she says.
Her company, the world's biggest energy trader, often won awards for innovation. Gradually it became clear that some of its accounting practices were more than innovative.
In December 2001, Enron filed the biggest US bankruptcy case to date. Thousands of workers lost their jobs and their pensions invested in its shares, and other investors lost billions of dollars.
Back in 1996, Watkins was working with Andrew Fastow, the chief financial officer now charged with fraud, when she began to witness aggressive accounting. "I was starting to see Andy Fastow cross the line," she says, claiming he asked her to lie to one of Enron's partners about an investment. "It should have been a huge warning flag," she admits. It merely prompted her to move to a different part of the empire, Enron International, where she later became a vice-president.
All this time, Harvard graduate Jeffrey Skilling had been growing in influence at Enron, reinventing what it did for a living to include power trading, selling retail electricity and even the provision of broadband internet services. In 2001 he became chief executive officer. "Jeff Skilling was incredibly charismatic," she explains, "but very, very intimidating. He can really cut people off at the knees. You were certain he was just the brightest guy around, but in hindsight I really feel we were somewhat like cult followers."
By mid-2001, Watkins was working for Fastow again. This time, she stumbled across evidence of massive fraud.
When the penny dropped
She was looking at an Excel spreadsheet listing 200 assets which Enron wanted to sell to raise cash. Against half a dozen, she saw the name Raptor. These were complex, off the books partnerships used to hedge assets. "I was seeing hundreds of millions of dollars in the loss column," she recalls. "I mean you couldn't do the math, it didn't work."
She questioned other staff, was shown stupefyingly complex charts of boxes and arrows, and at last the penny dropped. She realised these Raptor structures were empty, shell companies capitalised with nothing but a promise of Enron stock. They were hiding debt.
"When I saw that I just knew this was accounting fraud. It's outrageous. I thought, I have got to get out of here. I can't work for a company that is doing this. I'm gonna work up the guts, if I can, to confront Jeffrey Skilling on my last day." But soon after, Skilling resigned unexpectedly, for what he said were personal reasons. "He beat me out the door," she now says.
So Watkins sent an anonymous memo to the man who'd taken the helm, the founder and chairman, Kenneth Lay. Touchingly, she showed it to her mother first, who corrected it. The memo details her eerily prescient fears that Enron might "implode in a wave of accounting scandals". Soon after, she met Lay to convey her fears face to face. She showed him comments from a colleague close to the Raptor transactions, who'd said: "I know it would be devastating for all of us, but sometimes I wish we would get caught, we're such a crooked company." Watkins pauses. "When Ken Lay read that, he actually winced, you know, a crooked company, how could that possibly be?"
Enron began an inquiry, but it failed to use independent investigators and her claims were largely dismissed. Months later, it revealed the black hole in its earnings, and confidence in the company evaporated. "My warnings came too little, too late to save Enron."
Some former colleagues take a dim view of her actions, arguing she raised concerns only when it was clear the ship was going down, and they point out that she sold Enron stock options worth $17,000 shortly after talking to Ken Lay. That's minimal, compared to sell-offs by other executives.
Others claim that what she did doesn't even qualify as true whistleblowing, because she never took her concerns outside the company, to the financial regulator or a third party. Why not? She clears her throat at what's obviously a recurring question.
"When a company cooks the books, it rarely has a chance of surviving, but to do that it has to come clean itself, to admit its problems and re-state its financials. I felt here was Enron's chance to come clean."
Soon after Enron's bankruptcy, her part in its drama suddenly came to light. In January 2002, a Congressional committee published her memo to Ken Lay. Overnight, massed ranks of TV and press reporters beat a path to her door in Houston. "It was mind-boggling," she recalls, "but in some respects it was vindication that I had been right."
There was an even bigger media circus to come. Last February, she testified before the Congress and Senate. Jeffrey Skilling gave evidence beside her, maintaining he knew nothing of Enron's troubles when he resigned.
She believes Skilling was "hoping his old intimidatory tactics would work; he would give me the evil eye and I would not give my opinion to Congress". If so, it didn't work.
Was he telling the truth about how little he knew? She is unbending. "I think that was not true. He knew the future for Enron was looking bleak. I think he could look down the road and say, oops, I don't have another rabbit to pull out of the hat, these Raptor structures are going to explode on me in a couple of years and I've gotta get outta here."
The criminal investigation into the scandal goes on. A number of former executives have been charged with offences including fraud, among their number Andrew Fastow. If convicted, he faces hundreds of years in jail. He has pleaded not guilty. But Jeffrey Skilling and Kenneth Lay have not been indicted, to the consternation of many former employees and investors. I asked Watkins what she expects to happen to them.
She measures her words carefully. "I don't think Ken Lay in the long term will be indicted. I think it is likely they will indict Jeffrey Skilling."
Rumours have been circulating in Houston that a key executive is about to plead guilty and cooperate with prosecutors investigating Skilling.
Watkins now gives lectures about corporate ethics. She's co-written a book about Enron, and is launching a company offering the services of older independent directors to sit on boards.
The Ken Lay defence
In the end, what did her actions really achieve? She sits back and considers. "It may help convict some people," she hazards, "but I think it's really more helpful in the legislation that got passed."
Members of Congress were shocked by what's known as "the Ken Lay defence". Watkins describes it thus: "Sorry, I was asleep at the switch, out to lunch, didn't know what was happening." As a result, the 2002 Sarbanes Oxley Act requires CEOs and CFOs to certify financial accounts are true. If they're found to be lying, they face up to 20 years in jail.
She takes a pugnacious pleasure in explaining why this could be a great motivator. "Monetary fines don't do it. If you've made a hundred million dollars and you're fined $25m, you're still filthy rich. To go to jail scares these guys to death. Standing in a cafeteria line for food, communal showers? It will change them forever."
It's not clear how much the new legislation owes to directly to Watkins. And in any case, institutional investors and other critics feel the new law falls far short of what's needed. But there is one thing her whistleblowing actions certainly achieved. They changed her own life, forever.
The CV
Born Tomball, Texas, August 28, 1959
Education Accountancy at the University of Texas
Career : Auditor, Arthur Andersen, in Houston and New York, 1982-90; portfolio manager, MG Trade Finance Corp, New York, 1990-93; joined Enron, 1993; moved to Enron International, 1997; became vice-president, 1998; joined Enron Broadband Services, 2000; returned to work for Andrew Fastow, discovered $700m losses hidden in Raptor partnerships and revealed her findings to Ken Lay, summer 2001; resigned from Enron, 2002
Family Married, with one daughter
http://www.guardian.co.uk/business/story/0,3604,982216,00.html
