4 Lessons From the Architect of the Enron Demise

Andrew Fastow knows a thing or two about short-termism, and corporate cultures gone wrong.

As Chief Financial Officer at Enron, he masterminded the web of illegal accounting practices that made the company look lucrative to investors in the short-term, but then led to the downfall of the US’s 7th largest company.

After spending 5 years in jail, he’s now speaking-out to the business community on how to avoid pursuing short-term profits to oblivion.

Here’s how companies can create a culture immune to the short-term urge:

1. “Is this legal?” is the wrong question

Boards too often fret about whether their corporate actions are lawful, rather than whether those actions are ethical.

When increasingly-stretched creative readings of the law become the sole basis for decision-making, it’s inevitable that someone will eventually step over the line.

2. Imagine your grandchildren will inherit the company

Mr. Fastow proposes a simple test for evaluating corporate decisions: Would you do it if the company was private and your grandkids would inherit it? He posits that had the test been applied at Enron, “99%” of the shady practices wouldn’t have been approved.

3. Have an antagonistic board member or advisor

Board culture can become entrenched – if groupthink rules the day, then board members are unlikely to speak-out if they have misgivings about a proposed course of action.

A board member whose role it is to challenge all ideas, or an advisor hired for the same purpose, can encourage other members to speak their minds.

4. Skepticism is a virtue

Beyond the board, a culture of skepticism throughout the firm should be encouraged. Employees should always feel empowered – not afraid - to ask tough questions about the ethics and long-term value of actions being undertaken.