Enron and the future of whistle-blowing

["Ian Murray" <seamus2001@xxxxxxxxx>]

Blowing The Whistle


By Caroline E. Mayer and Amy Joyce
Washington Post Staff Writers
Sunday, February 10, 2002; Page H01


As America watched Enron Corp. officials sweating in the
Washington spotlight last week -- swearing ignorance of
misdeeds, pointing a finger at others or simply taking the
Fifth -- there was the predictable buzz in the air. But above
the clicking of cameras and the low rumble of lawyers
conferring with clients, there came another sound.

Was it the echo of whistles being blown elsewhere in the
country? Is it wishful thinking on the part of fearful
stockholders, or might the spectacle of management in the hot
seat this time embolden a new flock of corporate canaries to
sing in alarm when they discover their company's cooked books,
discriminatory practices or less-than-lawful dumping?

While every worker with a 401(k) plan or individual retirement
account quakes, wondering when and where the next corporate
bomb will detonate, will uneasy employees come forward, whether
it's to keep their company from being Enronned or to save their
own jobs or, maybe, just to right wrongdoing?

Employees contemplating blowing the whistle may be tempted to
take some courage from Enron Vice President Sherron Watkins,
who last summer and fall explained her misgivings, first
anonymously and later in person, to Enron Chairman Kenneth L.
Lay. She told him she was "incredibly nervous" that the company
might "implode in a wave of accounting scandals."

And there's Margaret Ceconi, who e-mailed Lay saying the
company had "knowingly misrepresented" the earnings of one of
its major divisions.

And the congressional hearings revealed that concerns were also
raised by Jordan Mintz, Enron's vice president and general
counsel for corporate development. As the corporate lawyer
whose job it was to scrutinize deals, Mintz not only questioned
whether Enron's tangled partnerships were fair to investors but
also sought the opinion of outside lawyers.

Ceconi no longer works at Enron, but Watkins and Mintz do.
That's remarkable in itself. What's more, Watkins has a new,
larger office at Houston headquarters, and Mintz has been
promoted -- outcomes that are not the norm for most corporate
challengers, who often find themselves in a smaller office,
less important position or, most likely, out of a job. (It no
doubt helped that the company's collapse was so swift that
Watkins and Mintz outlasted the top officials who might have
swatted them down.)

While some call the Enron employees whistle-blowers, others
adamantly say that's not the case, given that they never took
their concerns public.

But no matter what label you apply to them, is it possible that
their examples signal a new moment for corporate challengers?

Some employees appear to think so, as they dial into special
telephone hot lines to report concerns about their companies.

Two of the nation's largest firms that maintain hot lines for
other companies report a noticeable increase in employee calls.
At Pinkerton Consulting and Investigations, which handles hot
lines for about 1,000 companies, calls have risen by 12 percent
since the Enron scandal came to light. At Network Inc., which
operates toll-free lines for about 650 companies, there's been
an even larger spike, with calls up 35 percent.

"I can't say scientifically it's all due to Enron, but there's
clearly a spike of interest in our services," said Network's
president, Ed Stamper.

Pinkerton thinks there's more to come. "I think employees will
recognize that ignoring issues or misconduct in the workplace
may in fact come back to impact them," said Clifford Thomas,
Pinkerton's vice president of compliance services. "It may
eventually affect their livelihood or, worse yet, their
retirement nest egg."

"The current cultural climate" has changed, said Myron Peretz
Glazer, a professor of sociology at Smith College who with his
wife, Penina Glazer, wrote a book about whistle-blowers a
decade ago. There's a feeling that "there are serious problems,
and we want you to speak up and there will be a lot of support
for you."

Yet the new era for whistle-blowers may only be transitory.
"There's always a spike" in complaints after a big scandal,
said John P. Relman, a Washington lawyer who has represented
many employees in discrimination suits, including Secret
Service agents against the FBI. "A lot of people feel empowered
when something like this happens and they see themselves as
having a little bit of protection." But that feeling lasts only
a limited time, he added.

That's partly because would-be challengers have seen throughout
the years that there are powerful forces arrayed against the
outlier, the naysayer, say lawyers and public interest
advocates who have worked with whistle-blowers. They see that
most corporate tattletales are not as fortunate as Watkins.
More often than not, company gadflies are, quietly and
privately, fired. No congressional hearings, no public uproar,
just termination.

A More Typical Case
Consider the case of Roy Olofson, who was vice president of
finance for Global Crossing Ltd., the telecommunications firm
that filed for bankruptcy on Jan. 28.

Last August -- the same month Watkins sent that now-famous
letter to Lay -- Olofson wrote to Global Crossing's general
counsel alleging that some of the firm's accounting practices
inflated the company's revenue. He was placed on paid
administrative leave within a few weeks and fired at the end of
November.

Global Crossing says the 63-year-old Olofson was let go as part
of a substantial reduction in the company's workforce. The
company added that his accusations were investigated, found to
be without merit and are only being raised now as part of an
effort by Olofson to win a multimillion-dollar settlement for
wrongful termination. That charge, in turn, has prompted
Olofson's attorney to accuse Global Crossing of running a
"carefully orchestrated smear campaign to divert attention from
Global Crossing's accounting irregularities." The Securities
and Exchange Commission is now investigating Global Crossing's
books -- as well as Enron's.

Yet the mushrooming impact of Enron's downfall -- as it prompts
other companies to restate earnings and causes nervous
investors to sell off stocks -- may overshadow Olofson's
experience and encourage other employees to come forward, at
least for now.

"If people see high and mighty, even arrogant companies like
Enron, being brought to justice, maybe they will have the
courage to stand up and say, 'I'm not going to be a part of
it,' even though it presents a great risk in the long run, a
real ordeal," said John Phillips, a Washington lawyer who has
represented hundreds of employees who have accused their
companies of defrauding the government.

Some of the complaints will be lodged by sincere do-gooders who
want to right a wrong. But not all, said Myron Glazer. Many
employees may come forward, he said, "for fear of being
implicated" in whatever corporate shenanigans eventually come
to light.

'Life-Changing Event'
Talk to a whistle-blower or a lawyer who has represented one
and you almost always hear the same statement: "Whistle-blowing
is a life-changing event." The reason is simple, according to
C. Fred Alford, a University of Maryland professor and author
of "Whistleblowers: Broken Lives and Organizational Power."
Reprisals are almost certain, he said. "Almost half of all
whistle-blowers are fired, and of those, half lose their homes,
and [of] the ones who lose their homes, more than half will
lose their families as well."

Even Watkins might have eventually lost her job if Enron had
not "self-destructed," Alford said. It was too soon to tell:
Many companies turn their corporate challengers into corporate
pariahs and let them twist in the wind, then fire them after
about two years -- long enough after the fact to make the
termination not look like retaliation.

"For every Sherron Watkins, there are hundreds of
whistle-blowers who never make even the back pages of
newspapers, so they lack that protection of visibility and they
are gotten rid of, sometimes legally, sometimes not. Then they
spend the next 20 years of their lives trying to figure out
what happened to them," Alford said.

It's no wonder then that "corporate morality becomes doing what
the boss tells you to do," he added.

Most whistle-blowers are not as famous as Karen Silkwood, the
worker at a Kerr-McGee plutonium-production plant who died in a
mysterious car accident when she was gathering evidence of poor
plant safety, or Jeffrey Wigand, the Brown & Williamson Tobacco
Corp. executive who was fired for revealing that the company
deliberately hid potentially damaging research about smoking.
Silkwood was the subject of a movie by that name, and "The
Insider" depicts Wigand's story.

But famous or not, the stories of most whistle-blowers are
similar: Not only are most fired, but they also find it
virtually impossible to find a comparable job.

As one whistle-blower who declined to be named described life
after being fired for questioning the firm's financial
transactions: "There is a pervasive feeling that a
whistle-blower is someone who has betrayed the employer he
worked for. He's labeled as idiosyncratic, disgruntled and
considered an outcast, someone who's too much of a risk to
hire." It took a year for this employee to find another job,
and it pays much less than the old one.

The Corporate 'Family'
It's not just the fear of reprisal that makes it difficult for
some employees to speak out: It's also the corporate culture,
which in some firms takes on the intimacy of a second family --
in some cases, the only family. Employees can "become so
identified with the organization and its practices that it's
hard to see something wrong, and someone who reports something
questionable is going to look like someone who doesn't care
about the family," said Suzanne Masterson, a professor of
management at the University of Cincinnati College of Business
Administration. This was especially the case with so many
dot-coms, where camaraderie was the key to the culture,
Masterson said.

It's important to notice that Watkins, Mintz and Olofson
pointed out their companies' problems with what seems, from the
outside, a decent amount of discretion and consideration for
the firm. They didn't steal documents and run to the local
newspaper. They had standing in their organization and had
expertise in the matters they were questioning. They took their
concerns quietly to the top guy -- and nothing happened.
Watkins got the corporate equivalent of a pat on the head,
Mintz's concerns were basically overlooked, and Olofson got the
boot. Given that, it seems legitimate to wonder whether
corporations can tolerate any challenge to their ways of doing
business, no matter how genteel an employee is in making that
challenge.

The Personal Stake
There's also an employee's financial stake in the firm. The
growing use of stock options and company stock in retirement
funds has meant that many workers are heavily invested in their
firm. And employees, like other investors, may think twice if
their actions could lead to a dramatic drop in the stock's
value. Then they're likely to suffer further retribution from
colleagues seeing their net worth sink -- or in Enron's case
turn to nothing.

Joseph L. Badaracco Jr., a professor at Harvard Business
School, theorizes that's one reason more people did not come
forward at Enron. By keeping quiet and trying to correct what
problems they knew existed, they hoped to turn things around,
"earn some real profits and go back to being a real company,"
Badaracco said. But "if they stopped playing the game, the
house of cards falls apart."

So why did someone like Watkins come forward? "One
possibility," said Badaracco, "is she just had a different
threshold, and some things [other employees] thought were
sleazy but necessary, she thought were too sleazy."

But, he added, she might have had other motives. "Often in
these cases, especially when the pressure is on, people stop
liking each other, so there could have been a personal matter.
The other possibility is that since she worked there for a
couple years this was a way of covering herself -- protecting
herself, settling scores and doing what she thinks is right."

In fact, some Enron employees have pointed to Watkins's
anonymous letter to suggest she did have a self-serving motive.
"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," it read in part.

Because Watkins never took her concerns public -- they were
disclosed only after congressional investigators started
looking into the company after Enron filed for bankruptcy
protection -- many people also suggest she doesn't deserve the
whistle-blower label that others have given her.

"She spoke up, but I don't see any evidence that she resisted
or went beyond in some way to demand a remedy," Glazer said.

Alford disagrees, saying "she put herself at very substantial
risk."

Some companies are more receptive than others to
whistle-blowers, but often it's hard to tell how a company is
going to react to allegations. A growing number have set up
toll-free hot lines or set up special ombudsman or
inspector-general offices to probe complaints voiced by
employees. In fact, Pinkerton and Network Inc. report that in
addition to receiving more calls from employees, they are also
getting more calls from companies that want to set up programs
to make it easier for employees to voice their concerns.

But hot lines and special offices don't guarantee that
allegations will be taken seriously, said lawyer Phillips. "It
varies from corporation to corporation, and you never know if
this is not going to wind up hurting your career within the
company and you might become isolated."

At Enron, all the signs were that the company cared about
corporate ethics. In July 2000 the firm issued a code of ethics
and Lay sent a memo ordering all employees to read the 61-page
booklet and sign a certificate of compliance.

Additionally, the company liked to stress its commitment to
"RICE" -- respect, integrity, communication and excellence. The
words were printed on T-shirts, on paperweights and on signs
posted around the company.

Yet there was another side to Enron's culture, as discussed in
an August 2001 report by the energy consulting firm Global
Change Associates: Enron was a competitive, intense and
high-stress workplace. "If an individual or individuals fail to
add to the corporate coffers they are quickly deemed to [be]
unnecessary 'overhead' and are expendable. . . . When Enron no
longer needs someone, they are removed and replaced," the
report said.

So far, Watkins and Mintz have escaped that fate. And we don't
know what will happen to employees who become inspired by their
example. Their experience will ultimately reveal whether this
is a new era for whistle-blowers.