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Enron and the Ethics of Business
A Sermon Given
by Reverend Roger Fritts
on February 3, 2002
at Cedar Lane Unitarian Universalist Church
Bethesda, Maryland
Each February the church schedules a service auction as one of its
major fund-raising activities. We ask members of the church to offer
services for which other church members might bid. The range of
offerings was impressive and imaginative: the use of a summer home
at the shore or in the mountains; a variety of gourmet dinners;
landscaping advice; and baskets of food, baskets of books, pictures,
and exercise equipment. This year's auction will be next Saturday
evening in the church. I encourage you to attend.
One of my annual offerings is a promise to allow the high bidder to
decide the topic for a sermon I will deliver here sometime during the
church year. Several people bid on this opportunity, but eventually the
biding narrowed down to two: Maralee Eliot and Carol Ireland. The
bidding went on and on, but finally Carol held out the longest. She
purchased the right to name a sermon topic.
The night of the auction Carol and I began talking about having lunch
together. Apparently, however, we are both procrastinators. We did
not get together until this past January and today is the last Sunday
before the next Auction. I had a great lunch at the Ireland home with
Carol and her husband, Terry. Carol even called Maralee Eliot and
invited her, but Maralee was unable to join us. The food was good
and we talked about many things. Carol admitted that she did not have
any particular sermon topic in mind. She had bid for the right to pick
a sermon topic just for the sheer pleasure of bidding. As the
conversation progressed, however, it turned out that Carol's husband
Terry did have an idea.
A year ago Terry had just resigned from a consulting job for a
company whose ethics were not the highest. He had just received his
last check from the company. He thought it appropriate that instead
of using the money for his own benefit, he would give it to the church.
Even better, it occurred to him that there would be a certain justice in
using the money from a business with questionable ethics to buy the
right to select a sermon topic and then to pick business ethics as the
topic. That was my assignment -- to preach about business ethics.
As I listened to Terry I could not help but think of the bankruptcy of
the Enron Corporation. According to news reports Enron
accumulated more than one billion in hidden debt over the past five
years. Last September top management assured Enron employees and
shareholders that the company was healthy. Simultaneously the top
management was selling their own shares of Enron stock and
protecting their personal fortunes. Many employees lost 70 to 90
percent of their retirement savings. They were forced to hold their
Enron shares from October 16 to November 13 while the stock value
plummeted. Also, in October, Enron's accountant Arthur Anderson
started shredding thousands of documents concerning Enron's audits.
On December 2, Enron laid off 4,000 employees and filed for
bankruptcy.
In the past year the business leaders at Enron have struggled with
what they should do as the financial situation of the company
deteriorated. We do not know most of the details. I can only imagine
that people have suffered sleepless nights, personal soul searching, and
considerable anxiety as the problems became more obvious.
Clifford Baxter was an Enron official. In the fall of the year 2000
Enron announced that the board had promoted him to vice chairman
of the company. This put him in line to become CEO when Ken Lay
retired. The Enron press release said:
"Cliff is a key member of the team that has built
Enron's highly successful wholesale business," quoting
Ken Lay, Enron chairman and CEO. "His promotion
will facilitate an even greater focus on extending that
business model and continuing to increase Enron's
return on invested capital."
Baxter, the press release said, was a native of Amityville, New York.
He received a bachelor's degree with honors from New York
University and an Masters in Business Administration from Columbia
University, where he was the valedictorian. He joined Enron in 1991.
Only a few months later Enron issued a second press release.
Enron Corp. announced today that Vice Chairman J.
Clifford Baxter is resigning from the company. "Over
the past ten years, Cliff has made a tremendous
contribution to Enron's evolution, particularly as a
member of the team that built Enron's wholesale
business," said Jeff Skilling, Enron president and CEO.
"His creativity, intelligence, sense of humor, and
straightforward manner have been assets to the
company throughout his career. While we will miss
him, we are happy that his primary reason for
resigning is to spend additional time with his family,
and we wish him the very best."
Baxter has ties to the Roman Catholic Church. In my mind I try to
imagine what I would have said or done, if I were a Catholic priest
and Clifford Baxter had sought me out for advice. I hoped I would
have asked him to talk about his feelings. I hope I would have
encouraged him to open up to share how he was doing, in the
confidential conversation between a cleric and a parishioner. I hope he
would eventually trust me enough to talk about what apparently was
a deep depression, a deep feeling of unhappiness about the goings on
at Enron. If he asked my advice, and appeared receptive, I would have
encouraged him to contact investigators at the Securities and
Exchange Commission to tell them what he knew about Enron's
financial situation. I hope I also would have encouraged him to see a
doctor for treatment of his depression.
I do not know if Cliff Baxter ever sought help from a priest or from
anyone else. Ten days ago he was found in his car dead from a gun
shot. Forty-three years old, he left behind a wife, a 16-year-old son
and an 11-year-old daughter. The family held the funeral at a Catholic
Church in his hometown on Long Island. Although in bankruptcy,
with thousands of staff members having lost their pensions, top Enron
officials did find enough company money to fly in the company jet
from Houston to New York to attend the funeral service. The police
have ruled Cliff Baxter's death a suicide.
Another Enron official who has been much in the news is a woman
named Sherron Watkins. According to press reports, Mrs. Watkins is
Enron's vice president of corporate development. She grew up in a
small town of Tomball about 30 miles from Houston, the daughter of
two, now divorced, secondary school teachers. Her Uncle Richard
runs a local supermarket. Cousin Matthew runs the funeral parlor.
Sherron's mother is now married to the mayor, 'Hap' Harrington.
Sherron's father, Dan Smith III is the descendant of another mayor
from Civil War days. Sherron had a strict Lutheran upbringing. The
family had originally come from Germany in the 1830s. "Lutheran
school stressed that you do your best," Sherron's mother told a
reporter.
Sherron Watkins studied accounting and was the member of a sorority
at Texas University in Houston. After she graduated, she joined the
Andersen accounting firm. A transfer to the New York office was a
relief from provincial life, with an apartment in Midtown and summers
in the Hamptons. She returned to Houston and joined Enron in 1994,
hired through a recruitment program. In 1997, at the age of thirty-seven, she married Richard Watkins, another executive in the energy
business, whom she met in church. She gave birth to a daughter,
Marion who attends a Houston nursery school. She climbed the Enron
ladder to vice president.
However, last summer Mrs. Watkins became aware of the problematic
accounting at Enron. In August she decided to inform Enron's Board
Chair, Ken Lay. Fearing that Ken Lay would fire her for what she was
about to say, on August 22 she met with Dr. Lay and gave him a
memo. She wrote, "I am incredibly nervous that we will implode in a
wave of accounting scandals. My eight years of Enron work history
will be worth nothing on my resume. The business world will
consider the past successes as nothing but an elaborate accounting
hoax."
The accounting she said, was "a bit like robbing the bank." She asked:
"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?" Mrs.
Watkins, still works at Enron, but it has not been easy for her.
According to one press report, after the press made her memo public
January 15, she visited her Lutheran minister. She asked to be added
to a prayer chain of people looking to the church for support in their
lives.
In my mind I try to imagine what I would have done, if I were Sherron
Watkins's Lutheran Minister. What might I have said, if she had come
to me for advice last summer. Not knowing of the scandal that was
about to break, I hope I would have encouraged her to do her
research. I hope that I would have told her to gather her facts
carefully before taking a memo to the chair of the Board. I hope I
would have encouraged her to get the perspective of an outsider. I might have said, "Talk to someone whom you trust in your
professional association to help you decide whether an ethical
violation has taken place."
If I were in the role of her minister, I would want to make sure she
was aware of the risks she was taking.
- She could be isolated and shunned by others. One newspaper
says that in the past two weeks at Enron the top management
has treated Sherron Watkins as an outcast.
- The CEO could fire her. Our children or our spouse may
depend on our salary and our health insurance policy. Most of
us must think long and hard before we risk writing a memo
that points out unethical behavior.
- Business executives could block her from work in high level
positions in the accounting industry. Many of us work in
specialized professions where people know each other. If our
work community labels us as a troublemaker, we may need to
move across the country or even change professions, to find
employment.
After talking about the risks I hope I would have encouraged Mrs.
Watkins to go ahead and meet with the Chair of the Board and tell
him in effect that he, the emperor, had no clothes.
To his credit Kenneth Lay did not fire Mrs. Watkins. Instead he
ordered a limited review of the companies situation using Enron's
own law firm, which had helped set up the questionable partnerships.
To his discredit, he continued to promote Enron stock even after the
August 22 meeting. Even before August 22, Ken Lay had started to
sell his own Enron stocks.
Tomorrow Kenneth Lay is scheduled to testify before Congress.
According to news reports, Kenneth Lay is fifty-nine years old, a
native of Missouri and the son of a Baptist minister. He is a Phi Beta
Kappa graduate in economics from the University of Missouri, where
he also received a Master's degree in economics. Subsequently he
earned a PhD in economics from the University of Houston. He
married his first wife in 1965.
Dr. Lay worked for the Federal Energy Regulatory Commission and
served as Deputy Under Secretary for Energy of the Department of
the Interior. Additionally, while in Washington, Lay was an assistant
professor at George Washington University, teaching graduate
courses in economic theory and in government-business relations.
During this time Dr. Lay developed his beliefs about how energy
markets should be changed--the ideas behind the rise of Enron. Mr.
Lay became a keen advocate of the liberalization of gas and electricity
monopolies. Also while in Washington, twenty years ago he divorced
and married his secretary. Between them he and his current wife had
five children and six grandchildren.
In 1985 back in Houston, Mr. Lay became the president of a local gas
company, which became Enron in 1986. He became a popular figure
in the city, as a supporter of many charities. He also became a member
of the Board of Trustees of the First United Methodist Church.
Over the next sixteen years Dr. Lay pushed for government
deregulation of the price of electricity. His push to trade energy
futures just like other commodities caused one news magazine to
describe Enron as an "evangelical cult" with Mr. Lay as the "messiah."
As the federal government and individual states deregulated electricity
Enron grew to be the seventh biggest company in the United States,
and the world's largest energy trading firm. Dr. Lay promised that
with deregulation the average price of electricity would drop, as
energy producers competed to sell electricity in open markets.
In fact energy prices in California skyrocketed a year ago. It appeared
that Enron exploited the situation and made hundreds of millions of
dollars off the people of California, and forced rolling blackouts.
Meanwhile Enron was investing in other companies using complex
partnerships with names taken from the Jurassic Park movies, names
like Condor and Raptor. The problem was that instead of rising the
stock holdings of these partnerships plummeted in value. However,
Enron's books did not show these loses.
Tomorrow Dr. Lay will have a chance to explain how all this
happened. Last week his wife appeared on the television, and
suggested that her husband was not on top of things in his role as
Chair of the Board of Enron. She said, "He can't be everywhere. He
has to run a big company. He can't do everyone's job for them. There
are some things that he wasn't told. There are some things that the
board of directors weren't, didn't know. But that will all come out in
the investigation. Those things will all come to light. That's what
we're all praying for, that they'll get the truth and they'll bring it all
out."
Linda Lay also suggested that she and her husband are now in serious
financial difficulty. She said, "We're fighting for liquidity. We don't
want to go bankrupt. Other than the home we live in, everything we
own is for sale." Realtors value their primary home in Houston at
seven million dollars. She told the interviewer that all the three
hundred million in compensation and stocks Ken Lay had received
from Enron over the last four years when he invested in Enron, and it
is all gone.
If I were the minister of First United Methodist Church in Houston,
and Kenneth Lay came to me for pastoral counseling, I wonder what
I would say.
Given what happened to Cliff Baxter, I think I would first ask him
very seriously if he were having thoughts of suicide. If he is having
such thoughts, I would do my best to discourage them. I would
encourage him to talk about his feelings and I would listen, and reflect
back what I heard.
However, I would not just do reflective listening. I would look in the
conversation for a teachable moment, a point at when I thought Ken
Lay might be receptive to hearing my advice. I would encourage him
to be completely honest in answering questions from members of
Congress. I would tell him that if he any attempt on his part to dodge
responsibility by claiming others did not tell him what was going on,
he would be viewed with disbelief. I would tell him that people viewed
the statement of his wife that they are in serious financial difficulty
with skepticism. I would suggest that it was in his interest to have an
outside accounting firm audit his personal finances and make public
the report. I would encourage him to look seriously at his leadership
as CEO of Enron, and openly admit the mistakes that he believed he
had made. I would encourage him to tell people he was sorry. Finally,
I would encourage him to look for ways to make amends to the
persons whom he had harmed, particularly to the people who had lost
their retirement savings in the Enron bankruptcy.
At the end of the interview I would come back to the question of his
own state of mind, and the possibility of suicide. I would do all I could
to encourage him to hang in there to confess his errors, to try to make
amends, and to move on with his life.
Of these three people, Sherron Watkins appears to have behaved in
the most ethical way. I suspect that she has had sleepless nights and
much worry and anxiety as she has tried to make her way through this
very troubled situation. Nevertheless, unlike Clifford Baxter she is still
alive, and unlike Kenneth Lay her personal integrity and her
judgement are not in question. In this situation she is a model to all of us of how to behave when we are faced with ethical issues in the work
place. If our society's trust in business, and in the stock market is to
be preserved, it is dependent on courageous women and men like
Sherron Watkins who are willing to step forward and say clearly and
bravely that the Emperor is naked.
Office@CedarLane.org
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