An architect of one of the biggest corporate frauds in history offered a brutal mea culpa and advice to Canadian governance experts on Tuesday, urging boards of directors to make decisions as if the company was a family business.
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 asked to speak to business groups about ethics.
âIt’s like inviting Kim Kardashian to talk to your daughters about chastity,â Mr. Fastow said with a laugh in the crowd in Montreal. Or, he added, like asking Justin Bieber “to talk about how to behave.”
Mr. Fastow, who pleaded guilty to two counts of conspiracy and spent more than five years in prison for securities fraud, addressed the conference via a video link from Houston. Canadian immigration authorities refused to allow him to enter the country.
The conference continued and Mr. Fastow spoke for an hour, at times contrite and self-deprecating, offering a review of how his actions led to the 2001 collapse of America’s seventh largest corporation. He was responsible for creating numerous off-balance sheet entries that obscured Enron’s financial position.
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 am saying today is meant to try to minimize this, to rewrite history, to blame others.”
At one point, he waved the award he received as CFO of the Year in one hand and his prison ID card in another, causing him to wonder how the two could come from the same behavior.
One explanation for his downfall was that he didn’t stop to ask if the decisions he was making were ethical.
“I didn’t think about the ethical implications of the things I was doing. It was my character flaw, and I’m very embarrassed about it.”
When asked how Enron’s board approved his plans, he said members failed to consider the moral implications or long-term interests of the company – an attitude that exists on most boards, he said. âThe board was asking the question – and I would say the question most boards ask is, ‘Is this allowed? “”
He urged board members to ask a different question: “If this business was a private business and I left this business to my grandchildren, would I make this decision?” stuff at Enron. “
Calling himself “the head of loopholes” at the energy giant, he said he had finally rationalized that he was following the rules, even though he was operating in gray areas of accounting.
âI wasn’t sitting in a dark room with a bunch of sinister guys thinking, ‘How can we break the law?’ I thought what I was doing was awesome. We were rocket scientists coming up with every new accounting shift, every new loophole. “
He said he only realized what he did was wrong to Enron when he was in jail and his 15-year-old son visited him. Her boy asked how his father could be behind bars if he had never intended to break the law.
Mr. Fastow has become a lecturer and guest lecturer at universities and conferences since his release from a Louisiana prison in 2011.
In an interview after his speech, Mr Fastow said that one way to start changing an ingrained culture was to have either a director on the board or a hired advisor 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 perspective to provide different perspectives that existing board members might be reluctant to present to themselves.”
He said business students asked him what they could do if they ever found themselves in an environment like Enron’s, where they believe wrongdoing is happening, and he told them that it was difficult to openly object to behavior without compromising your career prospects.
Instead, he recommends that 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 implications. long term of a proposed action.
He added that he still sees companies making regular accounting decisions or creating structured financial instruments that simply mask problems or provide a “showcase” in the same way Enron has done with its off-balance sheet special purpose entities. .
Indeed, he said he gets calls from short sellers and plaintiff attorneys wanting to learn more about the types of things companies do to be deceptive, and he said the examples are easy to see. to find.
“It’s rare to find companies that have done it as blatantly as I have, but it’s not at all difficult to find companies that do it to some extent.”
Lynn Beauregard, president of the Canadian Society of Corporate Secretaries, which represents corporate governance professionals, said there was a “pushback” after the idea of ââinviting Mr. Fastow to the conference. annual, which was dubbed “Governance, Risk and Ethics: A New Era of Responsibility.”
Ultimately, it was decided that one of the most notorious figures in corporate mischief could provide advice “on the dos and don’ts”.
âHe has a lot to share on the lessons learned,â she said. “Governance is not black and white.”