Without Ethics and Morals, Responsibility is Only a Word

In the recent HBR piece If the Auditors Sign Off, Does That Make It Okay?, Lawrence Weiss writes about a recent lecture by Andrew Fastow (former CFO of Enron) in front of his class. It was a lecture where Fastow runs through what happened, and where he felt things went wrong. How he, and others, ended up making decisions that bankrupted the company, defrauded thousands of employees, and ultimately lead to a six year prison sentence for himself. where he presumably had plenty of time to think about what he had done.

It is a post that for me was quite interesting, and reading what Fastow has to say is intellectually interesting as I remember that time clearly, and I read the books that came out after. For me, it was a time where I was horrified (as an MBA student) that executives would not only systematically take advantage of the market gaps (remeber the 2000 energy crisis in California), but would destroy business and lives like no other firm in the history.

They represented personal greed, to the max, and had zero interest in a legacy beyond that.

A feeling that was actually supported by this piece, even though Fastow is supposed to be confessing his sins, repenting, etc. In fact, what I saw is a person who is still unable to grasp why things really happened, or what his responsibility was for what happened. for him, it was the “system” and his “advisors”, and I hope the students understand that and call him out for it.

Anyway, some of the key phrases for me were:

to Fastow, greed, insecurity, ego, and corporate culture all played a part. But the key was his proclivity to rationalize his actions through a narrow application of “the rules.”


He began the presentation by admitting he committed fraud and taking full responsibility for his actions. He made a heartfelt detailed apology and expressed remorse for having hurt so many people. He admitted making technical violations and taking wrongful actions that, while approved, were misleading. He said he knew what he was doing was wrong. But he rationalized those actions in his mind at the time, because the result was higher leverage, a higher return on equity, and a higher stock price. Further, he convinced himself that his actions were acceptable because they had been signed off by the firm’s lawyers, accountants, and board and were disclosed in the financial reports. He told himself his actions were systemic, it is the way the game is played.

and more interestingly

Fastow suggested that to avoid falling into an ethical trap he should have asked himself the right questions: Am I only following the rules or am I following the principles? If this were a private partnership, would I do the same deal?

The glaring issue that Fastow conveniently left out was his role in shaping the advice that he was receiving from his advisers. If, they had been truly third party independent and been in a position where he could not cajole the outcome, then perhaps he would be right. Perhaps you need the gut checks. But, the fact is that he (and others inside Enron) were very active in helping their advisers shape the deals so that they would fit through the legal structures that existed. And when that didn’t work, there were threats made to find someone with the imagination who could make it work.

All possible because this was an executive set without ethical boundaries, or consideration of morals, for what it was they were actually doing. At no time did this team think about the possibility that they could ruin the lives of employees, investors, or customers. Which ultimately brought down Enron, and everyone in and around it.

To which I will end with this. At no time was the Enron team acting responsibly, not even to themselves. Their actions, without morals or ethical considerations left them exposed to making decisions that were nothing more than high risk bets.

And one would have thought with 6 years to think about it, Fastow would have had the ability to work it out. It wasn’t about his advisers. It was about him, and what he valued.

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