Ethics Was An Alien Concept

The Oregonian
Robert Landauer
(Copyright (c) The Oregonian 2002)

Enron's collapse is as fascinating for what it says about personal moral values and duties as for what it says about corporate buccaneering.

The Securities and Exchange Commission settled a civil suit with Sensormatic Electronics of Boca Raton, Fla., that speaks instructively to both points.

The SEC found in 1998 that the maker of anti-theft devices inflated profits at the end of each quarter by "turn(ing) back the computer clock that dated and recorded shipments.. . . and] then prematurely recognized revenue on shipments made past the end of the quarter."

Joy Lynn Schneider Green, Sensormatic's controller of U.S. operations, discovered the trickery. She allowed it to continue and failed to report it to the board of directors' audit committee or the independent auditors.

Several company officers were fined. The SEC barred Green as an accountant for publicly held companies for three years. And Sensormatic settled a shareholder suit for $53 million.

This case, especially involving Green, should have spoken to actors in the Enron drama, suggests J. Edward Ketz, accounting professor in Penn State's Smeal College of Business: "I think her obligation is to tell a higher-up supervisor. If there is no satisfaction or if there is no one higher-up (if the guilty party is the CEO), then her obligation is to tell the audit committee, and, if there is no satisfaction there, she must inform the external auditors."

Another question could be pertinent even if someone told a boss, board member or outside auditor: When did the employee learn of the shenanigans and how long did he or she wait before telling anybody?

Sherron Smith Watkins, an accountant working for Enron's chief financial officer, is the subject of the only admiring reports I have seen regarding the Enron scandal. She is celebrated for telling then- Chairman Kenneth Lay on Aug. 22, 2001, about what she regarded as improper Enron partnerships with her boss and warning that they could make the company "implode in a wave of accounting scandals."

Possibly unknown to Lay, two days earlier Watkins disclosed her concerns to an Arthur Andersen audit partner in Houston. (The House Energy and Commerce is looking closely at how the auditors dealt with the disclosures.)

Watkins' family, co-workers, friends and lawyer cast her as a principled heroine for coming forward despite her fears that she would lose her job.

Watkins does seem to have acted roughly in accord with principles inherent in the
Sensormatics case. But it's wise to suspend judgment until this question is answered:
What did she know, and when did she know it?

Of more interest, though, is that quite a few Enron workers knew or should have known but didn't act.

Watkins' seven-page memo to Lay (made public by congressional investigators) and other news reports indicate that other Enron employees were concerned about the accounting practices but kept quiet, talked only among themselves or didn't push the issue, even anonymously, to the board or the outside auditors. In short, a culture of going along to get along.

Now, few of us are courageous every time we face risk. Sometimes we postpone taking action until we get more information or see whether others share our suspicions. Sometimes, says Professor Dan Doyle of Seattle University's Institute on Character Development, we are confused whether our concerns about honesty and compassion for others should take priority over loyalty to our institution.

In addition to duties the law sets out for us, Doyle suggests that people trying to behave ethically should ask themselves five questions:

Did I do more good than harm today? Did I treat people with dignity and respect today? Was I fair and just today? Was my community better today because I was in it? Did I practice any virtues today?

Fellow employees, shareholders and creditors might have been spared the financial scourging they now suffer if those in the know at Enron had acted forthrightly on answers to these questions. It seldom takes a saint, a scholar, a lawyer or an accounting genius to distinguish the good and fair from the deceptive and hurtful. Most of us can do it ourselves.

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REPORTERS & EDITORS: For more information, please contact Wyatt DuBois in the Smeal College of Business Media Relations Office at 814-863-3798 or wed112@psu.edu .

Penn State's Smeal College of Business offers highly ranked undergraduate, MBA, executive MBA, Ph.D., and executive education opportunities to more than 5,500 students at all levels. Featuring academic departments of accounting, finance, marketing, insurance and real estate, management, and supply chain and information systems, the college is also home to major research centers such as the Center for Supply Chain Research, the Institute for the Study of Business Markets, the eBusiness Research Center, the Farrell Center for Corporate Innovation and Entrepreneurship, the Center for Global Business Studies, and the Center for the Management of Technological and Organizational Change.

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