I first met Stephen Arbogast in 2006, when he was doing research on the first edition to Resisting Corporate Corruption, an in-depth study focused solely on the Enron scandal. The case studies included those of the key players, the well-known names of Ken Lay, Jeff Skilling and Andy Fastow, but it also delved into the lesser known executives at Enron whose actions or lack thereof became critical to the success of the accounting and legal fraud that took place at the company. Arbogast’s extensive research in these case studies revealed the subtleties of corporate opposition to the truth and the difficult options middle level executives and managers faced, including me. Careful study of these cases can help young professionals spot ethics issues early enough to address them, and also furnish tactical options for promoting ethical outcomes and protecting themselves.

The second edition of Resisting Corporate Corruption retained the valuable lessons from Enron, but was updated to include real life examples from the corporate and financial scandals that continued throughout the decade of the 2000s, culminating in the financial collapse of large Wall Street institutions in 2008. This third edition to Resisting Corporate Corruption is a must read for all students of American capitalism and specifically anyone considering a career on Wall Street or in public company finance and M&A. The new case studies on Goldman Sachs’ conflict of interest in the El Paso transaction as well as the Corzine/MF Global and the Citi-Banamex cases offer amazing insights into just a few of the complicated and ethically challenging issues facing those in finance today. In reading these cases, including the incredible documentation/evidence presented, my first thought was that the ethical choice is very clear, so why the hand-wringing angst? What made the decisions cloudy? My conclusion in these new cases mirrors my experiences at Enron—that the incentives in place through stock-option heavy compensation structures and bonus schemes subconsciously force a rationalization of unethical behavior in leaders and managers.

After nearly two decades of speaking on Enron and the topic of ethical leadership, I am often dismayed at two grave misunderstandings about ethics and being ethical. First, that “teaching ethics at the college level is pointless, that it is too late to mold a value system at that age.” The second is the naive outlook most college students maintain regarding the ethical challenges they will face in their career, namely that the ethical dilemma will be clearly seen and the choice to do the right thing, easy to make.

The accounting scandal at Enron resulted in devastating shareholder and creditor financial losses but on a more personal note, it produced over two dozen felons; twelve Enron executives served prison time, eight served probation, and one, Ken Lay, died before his sentencing for securities fraud convictions. Arthur Andersen, Enron’s auditing firm, collapsed under a federal indictment for obstruction of justice (shredding documents), four Merrill Lynch bankers and three NatWest bankers were found guilty of various crimes akin to aiding and abetting Enron’s shaky financial schemes, and all seven bankers served at least some time in prison. Hundreds more, at Enron, Andersen and various banks and law firms were targeted and investigated by the Department of Justice, often spending their life savings to avoid indictments. Others lost CPA licenses, paid fines and otherwise had their careers and reputations ruined. Chase, Citibank and Canadian Imperial Bank of Commerce (CIBC) settled Enron shareholder litigation with payments of $2 billion each.

What happened? A complete breakdown in moral values? Yes, but the scary part is that the breakdown was not by outright intent, but more by small steps in the wrong direction. Enron employees made wrong choices, choosing unethical paths. Almost all of them never thought they were breaking the law (for the most part, white collar criminals rarely intend to break the law). They rationalized their behavior. Ethical choices as an adult are usually masked. Of course if asked outright to do something illegal, we’d might say no. But if that choice is disguised, and presented in a positive manner, all the psychological tests from Yale’s Milgram shock tests of the 60s, to Stanford’s prison experiment in the early 70s, show that ninety percent of us will choose to act unethically, sometimes extremely unethically.

This is the reason I believe so strongly that universities must require ethics as a core curriculum in all business degrees. The argument that ethical values cannot be taught at the college level is irrelevant—that is not the point. We must teach ethics so that our business graduates will not freeze like a deer in the headlights when unexpectedly faced with an ethical challenge. The frozen-in-fear reaction will result in the same consequence as the deer, by not taking action, the ethical challenge leaves you as road kill. You have “gone along” with it, just by not doing anything.

Ethics courses that utilize case studies like those in Resisting Corporate Corruption cause students to work through a wide variety of ethical challenges. They also provide a tool kit of sorts for students to utilize in the real world. This kind of practical ethical training is essential. Without any knowledge of how to spot and address an ethical challenge, most employees will fall victim. The pressures are just too great to do otherwise.

Arbogast’s case studies also help to dispel the second misunderstanding about ethical dilemmas, which is that the ethical choice will be easy to see and respond to appropriately. I have been shocked at the number of college students who firmly believe they’d quit; walk out the door at the moment unethical behavior is required of them. I know of no one who, when the moment of truth arrived, has taken that stance. The pathway to avoid unethical behavior is rarely clear-cut, and often fraught with unexpected turns and outcomes. Studying the winding and perilous paths presented in the case studies, with some succeeding and some ending in ethical lapses, will help prepare students for the real world. Just as the financial crisis of 2008 showed us that the lessons of Enron had not been fully absorbed, the new cases added to this third edition reveal that the challenges exposed by the Wall Street financial collapse remain with us today.

It is also my fervent hope that students of Resisting Corporate Corruption will be able to take action without the historical consequences of whistleblowing. When I met with Enron’s Chairman and CEO, Ken Lay, in August of 2001, to warn him of hidden accounting problems that I believed could kill the company if not corrected, I was certain he’d form a crisis management committee to address the imminent peril. Lay, perhaps purposely, did not “hear” me. Deserved or not, the label Enron whistleblower means I cannot work in Corporate America again. I now speak around the globe of my firsthand account of Enron’s ethical and leadership lessons. It is not my chosen career path. I appreciate that new corporate legislation offers protections and a bounty program for whistleblowers and having that awareness through the work required by these case studies might be invaluable to more than just a few.

Sherron S. Watkins
February 2017