The Enron scandal is one of the most famous examples of modern corporate fraud and corruption. The publicity of the fraud, subsequent bankruptcy of the firm, trial of principals Kenneth Lay and Jeffrey Skilling, and the cascading negative impact on employees and shareholders form a notorious history of corporate malfeasance and misleading investors.

Enron was an energy company that dominated its market in the 1980s and 1990s. Originally involved in the distribution of electricity and natural gas and creation of the related infrastructure, through a series of mergers and acquisitions and expansions of corporate strategy, Enron extended its business into commodities trading, retail energy, water distribution, and data management. Enron was well-known for its commercial success, immense corporate wealth, and aggressive marketing and promotion strategies. Enron was also a fraud, with many of its purported assets overestimated in value or non-existent, and its immense liabilities and losses hidden in other entities so that its financial statements appeared much more positive than they ever actually were.

More has been written about the pervasively fraudulent practices that led to Enron scandal, and the individuals and motivations behind them, than probably any other corporate bankruptcy in history. Many of the principles of, and the unfortunate justifications for, a robust compliance and ethics program can be illustrated by this case. One of the more interesting points of analysis involves the conduct of employees during the fraud and their reaction to signs they may have noticed but not reported, followed by the eventual widespread discovery of the scandal.

Professional skepticism is undervalued in many corporate cultures. Enron employees were so enchanted by the aspirational allure that the company offered that they too often became blind to risks and unethical behavior, and missed or refused the opportunity to get out or to report the fraud.   The focus in discussions over corporate governance and compliance programs often focuses on “tone at the top” (senior management and supervisory boards) or the impact corporate collapses have on shareholders and the public – but a more important question is what about these employees who were there during the fraud, may have noticed signs, did not or could not do anything, and after are left with nothing but a sense of betrayal? The question of how to encourage these employees to mitigate risks or report wrongdoing, even in the face of personal loss or certain reprisals, challenges and inspires compliance professionals to strive for positive change.

This tale of corporate non-governance, as it was, demonstrates that putting compliance and ethics on the back burner in favor of commercial and competitive pursuits can have a far-reaching disastrous impact. The intersection of business and compliance will always be a tense spot, underscored by commercial pressures, cultural differences, and never-ending change. However, a closer, more understanding relationship between the two disciplines is the best path to modelling the employee conduct that is necessary for longevity and sustainability of success.

For compelling anecdotes from a personnel perspective of the Enron scandal, this 2002 article by Charles Fishman is a good read.