An architect of one of the biggest corporate frauds in history offered a blunt mea culpa and dished out advice to Canadian governance experts on Tuesday, urging company boards to make decisions as though the business was family owned.
Andrew Fastow, the former chief financial officer of Enron Corp., admitted to the Canadian Society of Corporate Secretaries that he was “always a little surprised” to be invited to speak about ethics to business groups.
“It’s like inviting Kim Kardashian to talk to your daughters about chastity,” Mr. Fastow said to laughter in the crowd in Montreal. Or, he added, like asking Justin Bieber “to talk about how to be well-behaved.”
Mr. Fastow, who pleaded guilty to two counts of conspiracy and spent more than five years in prison for securities fraud, addressed the conference though a video link from Houston. Canadian immigration authorities refused to allow him to enter the country.
The conference carried on and Mr. Fastow spoke for an hour, at times contrite and self-deprecating, offering an examination of how his actions led to the 2001 collapse of the seventh-largest company in the United States. He was responsible for creating many of the off-balance-sheet entries that disguised Enron’s financial condition.
The 53-year-old began by admitting his guilt.
“What I did was wrong. I am guilty, I believe I am guilty, I believe what I did was criminal,” he said. “Nothing I say today is in any way meant to try to minimize that, to rewrite history, to blame other people.”
At one point, he held up the award he once received as CFO of the Year in one hand, and his prison ID card in another, leading him to ask how the two items could spring from the same behaviour.
One explanation for his downfall was that he didn’t stop to ask whether the decisions he was making were ethical.
“I didn’t think about the ethical implications of the things I was doing. That was my character flaw, and I’m very embarrassed about that.”
Asked how Enron’s board signed off on his schemes, he said members failed to consider the moral implications or the company’s own long-term interests – an attitude that exists at most corporate boards, he said. “The board was asking – and I would argue the question that most boards ask is: ‘Is this allowed?’”
He urged board members to pose a different question: “If this company were privately owned, and I were leaving this company to my grandchildren, would I make this decision? It’s that simple. … I think it would have caught 99 per cent of the stuff at Enron.”
Calling himself “chief loophole officer” at the energy giant, he said he ultimately rationalized that he was following the rules, even if he was operating in the grey zones of accounting.
“I wasn’t sitting in a dark room with a bunch of sinister guys thinking, ‘How can we break the law?’ I was thinking that what I was doing was great. We were rocket scientists coming up with every new accounting twist and turn, every new loophole.”
He said he only came to understand that what he had done was wrong at Enron once he was in jail and his then-15-year-old son visited him. His boy asked how his father could be behind bars if he never intended to break the law.
Mr. Fastow has become a speaker and guest lecturer at universities and conferences since his release from a Louisiana jail in 2011.
In an interview after his speech, Mr. Fastow said one way to start changing an entrenched culture is to have either a director on the board, or a hired adviser to the board, whose role is to question and challenge decisions.
“I would say it would be worthwhile for boards to invite in an antagonistic viewpoint to provide different points of view that existing board members might be reluctant to present themselves.”
He said he has been asked by business students what they could do if they ever find themselves in an environment like Enron’s, where they think wrongdoing is occurring, and he said he tells them it is difficult to openly oppose behaviour without jeopardizing your career prospects.
Instead, he recommends people find a way to ask questions that raise key issues – such as whether an action creates long-term value – so that others are compelled to explain and justify the long-term implications of a proposed action.
He added that he still sees companies routinely making accounting decisions or creating structured financial instruments that simply mask problems or provide “window dressing” in the same way Enron did with its off-balance-sheet special-purpose entities.
Indeed, he said he gets calls from short-sellers and plaintiff’s attorneys who want to know more about the types of things companies are doing to be misleading, and he said examples are easy to find.
“It’s rare to find companies that did it as egregiously as I did it, but it’s not difficult at all to find companies that do it to some degree.”
Lynn Beauregard, president of the Canadian Society of Corporate Secretaries, which represents corporate governance professionals, said there was some “pushback” after the idea was floated to invite Mr. Fastow to the annual conference, which was dubbed “Governance, Risk and Ethics: A New Age of Accountability.”
In the end, it was decided that one of the most notorious figures of corporate wrongdoing could provide advice “on what to do and what not to do.”
“He has a lot to impart about lessons learned,” she said. “Governance is not black and white.”Report Typo/Error
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