Enron’s Watkins hopes collapse results in reforms

Watkins said she discovered problems with the company’s
accounting practices, namely third-party hedging transactions
backed by Enron stock, within weeks of being reassigned
to work under then-Chief Financial Officer Andy Fastow in
late June 2001. When former Chief Executive Officer Jeff
Skilling abruptly left the company in August, Watkins says
she knew the problems were worse than she had thought. She
wrote her letter to Ken Lay soon after, warning that the
company “might implode in a wave of accounting scandals.”
The company filed for bankruptcy less than four months later.

Watkins, who is still employed by Enron as vice president
of corporate development, said the only good that can come
out of Enron’s collapse is a mind-set change in corporate
America whereby companies diligently ensure compliance with
accounting and financial reporting regulations. “We
need real compliance,” she said. “We need to weed
out those who want nothing more than fig-leaf compliance.
“Without a movement toward substance over form compliance,
this country may very well need new legislation to force
compliance,” she said.

Watkins was joined in the panel discussion by Robert Stein,
dean of social sciences; Duane Windsor, the Lynette S. Autrey
Professor of Management at the Jesse H. Jones Graduate School
of Management; Stephen Zeff, the Herbert S. Autrey Professor
of Accounting at the Jones School; and Joseph Pratt, professor
of business and history at the University of Houston.

The four professors on the panel commented on Enron’s
corporate practices and the likelihood of regulation reform
on the horizon.
To help avoid conflicts of interest within corporate audit
committees, Zeff voiced the need for changes in the way
such committees are composed. Citing specific examples from
Enron’s audit committee, Zeff called for membership
term limits, the appointment of members who are in close
proximity to the company’s headquarters and who understand
American accounting practices, and members who are not the
beneficiaries of financial largesse from the company.

Windsor, who teaches business ethics, said the Enron incident
might reflect the “absence of a moral compass”
within the company. Indeed, financial regulations put into
place in the 1930s were successful for some time in keeping
check on the practices of American businesses, but that
seems to have changed in the 1990s. “It’s taken
this many decades to find ways to circumvent the regulations
in place.” The regulations, he said, “basically
assume honest management.” But “if the game is
to try to find loopholes, then you’re continually trying
to re-regulate.”

Pratt, a business historian, likened the Enron collapse
to that of Chicago’s Samuel Insull in the 1920s and
1930s. A public utilities financier, Insull built a $2 billion
empire that collapsed in 1932 and caused thousands of investors
to lose their life savings.