The scandals surrounding Enron over the past few years have brought many people into the public eye. Important executives, such as former CEO, Kenneth Lay, and Andy Fastow have become widely known, though not always in a favorable light. But one seemingly unimportant employee upstaged them and made Enron one of the biggest corporate scandals of all time. Sherron Watkins is credited with blowing the whistle on Enron's corporate misdeeds. She has received a lot of favorable press that has made her into a corporate hero. However, many critics question her true effectiveness as a whistle-blower, though few have done extensive research and writing on it. Based upon Near and Miceli's model of an effective whistle-blower, this paper will prove that Watkins fell short of many of the requirements.

In their article, "Effective Whistle-Blowing," Near and Miceli first discuss the individual variables that affect the outcome of whistle-blowing (682). Whistle-blowing is defined by Near and Miceli as disclosing wrongdoing within a company to people who can fix the problem. They add as a stipulation that whistle-blowing cannot be considered effective unless "the questionable or wrongful practice (or omission) is terminated at least partly because of whistle-blowing and within a reasonable time frame" (Near and Miceli 681). Both Watkins and Andy Fastow, the supervisor she first gave her information to, were fairly in line with the model for characteristics of the whistle-blower and the complaint recipient. However, Watkins was employed by a company who did not meet the criteria for whistle-blowing to be effective, therefore, making her efforts not as successful as they could have been. Near and Miceli site the wrongdoer's credibility and power as connected to their willingness to change as the necessary qualities for this category. Enron may have had a lot of power and even credibility until the time the scandal broke, but they did not have any willingness to change their bad habits. Watkins reports her feelings on Kenneth Lay's role in involvement at Enron in her speech at Time Magazine's 2002 Co-person of the Year banquet:

He had been CEO since 1985, but unfortunately he was almost always focused outwardly…And we at Enron always knew that the COO's were running the company…but he took the credit for it so that most of the business community feels like Ken Lay had to know about these structures and couldn't be that out to lunch. (Watkins 436)

Mr. Lay, I've concluded that you're perhaps the most accomplished confidence man since Charles Ponzi. I'd say you were a carnival barker, except that might not be fair to carnival barkers. A carny will at least tell you up front that he's running a shell game. You, Mr. Lay, were running what purported to be the seventh largest company in America. (Baird 1787)

Cheryl Wade discusses whether the outcome of the Enron scandal would have been different had more people become involved. The question arises as to whether Sherron Watkins was actually the only person aware of the wrongdoing. This is hard to believe based on the overwhelming evidence of accounting misdeeds. Wade's argument focuses on the duty of care that is held by corporate officers, such as Watkins. This duty has many parts but relevant to the Enron situation, it binds officers to "monitor the corporation's business through a system of information-gathering designed to bring salient facts to the board's attention. Included in the duty of care is a duty of inquiry triggered upon notice of potential problems" (Wade 772-773). This duty has been put forth to hold officers accountable for the actions of their corporation. These officers that were aware of the problems at Enron should have come forward. Whether or not their information would have made a larger impact than Watkins is uncertain, however, it would certainly have been more difficult to ignore if more officers had given their information. Even though a large proportion of the executives at Enron were involved in the wrongdoing, these officers should have reported their information to the board of directors and not just to Kenneth Lay (Wade 767). This board of directors may have been able to be of more use to Watkins because it was not as involved in the wrongdoing as the executives she tried to report her information to. Her lack of consideration in a variable, such as the corporation she worked for, left her alone in her pursuit to uncover the truth. Colleagues left her standing alone because they understandably did not want to risk their employment by revealing their information. However, their duty of care should outweigh their desire for job security because it binds them to a standard of integrity when they are in possession of valuable information that could change the course of the case against Enron.

The next area covered by Near and Miceli in the outcome of whistle-blowing are the situational variables (683). The first characteristic of this model is the company's dependence on the wrongdoing. Enron was very dependent on their improper accounting practices because it allowed them to appear like they had more money, which in turn opened them up for more partnerships and business deals. Berenbeim states that there were "so many beneficiaries to Enron's generosity that it will be difficult to find critics who are free from any appearance of conflict of interest" (306). Enron 's seemingly never-ending supply of money that kept them going complicated Watkins' claim that, financially, things were not as they seemed. Near and Miceli say that "wrongdoing that the whistle-blower perceives to harm the organization in a general way may be difficult to root out when it is supported by top management" (696). The executives were not forthright about Enron's misdeeds, so there was not a lot of reason for them to want to change just because an employee noticed it. This is another area that Watkins should have taken stock of before she began the process of whistle-blowing.

Watkins did have the next two characteristics, convincing evidence of wrongdoing and legal basis for her complaint. The convincing evidence came from her accounting expertise that allowed her to see the problems with the books. She was convinced further by the executive's avoidance of her claims. They did not do much about her reports, partly because as mentioned before, they were involved in the misdeeds she was reporting. Her legal reasons for making the case known are again based in the fact that she had significant knowledge to determine when there was conduct that violated law. After the scandal became public, Enron further proved the legal basis for her complaint through its immense chapter 11 bankruptcy that it filed. "The combined list of people and companies owed money by Enron filled 54 pages" (Fox 286). Enron's scandals went deeper than even Watkins could have imagined when she decided to reveal her information.

The climate of the organization is also an important factor in determining effectiveness. If Enron does not foster an environment and culture that allows employees to bring their concerns to the front, then she should have looked for another alternative to fix the problem that did need to be fixed, just not through whistle-blowing. Sims and Brinkmann, in their article "Enron Ethics: or Culture matters more than codes)," claims that Enron did contribute to the culture of wrongdoing and cutting corners. "However, in the long run, achieving additional value by constantly 'upping the ante' becomes harder and harder. Employees are forced to stretch the rules further and further until the limits of ethical conduct are easily overlooked in the pursuit of the next big success" (Sims and Brinkmann 2). Enron created an environment that did not encourage employees to come forward with incriminating evidence. Instead, they gave their employees free reign to pretty much what they wanted, even at the expense of honesty and ethics. Without these core values in place, Enron cannot be trusted to desire to make a change in their business dealings.

Another vital factor in the effect of the situational variables, according to the model, is the whistle-blower's use of external channels. Watkins did not fully consider her options and rights as a whistle-blower. After a meeting between she and Kenneth Lay, former CEO of Enron, he gave her letter to Enron's general counsel who then hired the law firm, Vinson & Elkins. This may have been a smart move for executives trying to cover their tracks, but not for Watkins because this law firm was involved in some of the improper money handling that she was blowing the whistle on. She also "never reported her concerns to the SEC, the Department of the Treasury, or any other governmental official" (Baynes 878). The US Securities and Exchange Commission's home page describes their primary mission as "[protecting] investors and [maintaining] the integrity of the securities markets" which is exactly the kind of protection she needed. Furthermore, the Department of the Treasury could have become very involved due to the financial problems within Enron. Though these would have been very helpful external channels for her to access in order to gain help, protection, and support for the injustices she was trying to fix, she did not choose to use all of her resources in order to make herself a more successful whistle-blower.

Today, whistle-blowers have another highly effective external channel. "On July 30, 2002, the Sarbanes-Oxley Act of 2002, P.L. 107-204, was enacted in response to the issues uncovered at Enron, Global Crossing, and other corporations" (McGowan and Brisendine 97). This law was enacted "to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws and other purposes" (Abrams and Yellin 49). This law would have been especially helpful to whistle-blowers like Sherron Watkins because part of its main focus is in accounting practices. It has set up an agency called the Public Company Accounting Oversight Board (PCAOB) that is in charge of overseeing much of the accounting practices of corporations like Enron (Abrams and Yellin 49). Watkins, by exposing Enron, helped to create this act which actually would have been of most use to her.

A very important variable that is not discussed by Near and Miceli is the effect of whistle-blowing on other employees, especially those who were not involved in the scandals. Employees were definitely drastically effected by the scandals that erupted at Enron. Brian Cruver wrote a book about his personal experiences with Enron's bankruptcy catastrophe that cost him his job and the way of life that he knew. "Next time you come across an anthill, give it a little kick. Within a few seconds, you will see exactly what Enron headquarters looked like on December 3, 2001" (Cruver 220). The massive loss of jobs was not something Watkins could have really taken into account. Her decision to blow the whistle in the way that she did cost over 4000 employees their jobs. Cruver expresses his frustration and animosity towards Enron when he refers to it as the Death Star and the fishbowl. He was certainly not the only one who felt this way about Enron. He describes the scene of that Monday morning in the office as he watched hundreds of employees pack up a large part of their lives and leave without any prospects:

I was all ready to go as others continued to pack, and I spun around to soak in my last few moments at Enron. The scene was spectacular and tragic at the same time-all those lives, changing in an instant…Liz Perry would arrive home to her husband, and they would figure out a way to survive off two unemployment checks. They would contemplate moving, perhaps to a new part of the country, just to get a fresh start. Luckily, they had only their fat little dog Pecos to support-but even he would have to cut back on the doggie treats. (Cruver 219)

Watkins is obviously not solely responsible for the outcome of her whistle-blowing but she did begin the process that resulted in hardship for her colleagues. Another hardship that was inflicted upon Enron employees who were fired was a huge cut in the amount of severance pay they were given. Their 401(k) plans were drastically cut and each employee only received $4500, regardless of the amount of time they had worked at Enron. Without any flow of income, many employees were left feeling helpless and without options. In Lauren Fox's book, Enron: The Rise and Fall, she discusses many employees reactions to the news of their severance pay. "'It was a nightmare. I'd hung in there because I had seven or eight months' of severance coming to me. But I got nothing,' said John Allario, who'd worked at Enron for more than five years, 'It was heartbreaking'" (Fox 289).

Thankfully for corporate employees today, Enron's lesson in how not to conduct business has sparked debate about new law legislation to protect retirement policies like 401(k) plans. According to Jack VanDerhei's article, "The Role of Company Stock in 401(k) Plans," the new laws would probably "modify current pension law [that] would attempt to strike a balance between protecting employees and not deterring employers from offering employer matches to 401(k) plans" (2). These new laws would hopefully prevent corporations from blocking employees from selling their stock like Enron and nearly entire losses of retirement funds. Employees today are much better suited to blow the whistle on corporations than Watkins was in 2001.

Both the situational and individual variables of Near and Miceli's model have the same end results. The organization's willingness to change is the major factor in terminating the wrongdoing. Enron obviously did not really want to change its ways. Its scandals shook the business community in drastic ways. Watkins should have taken into consideration the extreme unwillingness of the corporation to stop what they were doing or to even act on her reports. However, though she cannot be deemed effective by the standards of Near and Miceli because of the way she approached the situation, Watkins did uncover the scandal at Enron and become a successful whistle-blower in the eyes of the public. She brought important issues to the forefront that needed to be addressed. Without her efforts, however flawed they were, Enron's wrongdoing would not have been dealt with at all, at least not that quickly.

Enron's ways needed to be stopped in order to keep America's corporations trustworthy. Watkin's comment that "it's too important to the capitalist system that we rebuild trust" (439) is true, but whistle-blowing is a serious issue that can have many negative effects. It must be considered in terms of the way it effects the company, the whistle-blower, employees and society. Sherron Watkins did not carefully consider these issues enough before she made her claims. Had she handled the situation differently, or had there been more of an openness to change at Enron, the scandal could have turned out differently and thousands of people might not have lost their jobs.

Abrams, Adele, and Brian Yellin. "Sarbanes-Oxley Act." Professional Safety 48.5 (2003): 49.

Baird, Douglas G., and Robert K. Rasmussen. "Four (or Five) Easy Lessons from Enron." Vanderbilt Law Review 55.6 (2002): 1787-1812.

Baynes, Leonard M. "Just Pucker and blow: An analysis of corporate whistleblowers, the duty of care, the duty of loyalty, and the Sarbanes-Oxley Act." St. John's Law Review 76.4 (2002). Pro Quest. Oklahoma State University Library. 28 Sept. 2003 http://www.proquest.umi.com/pqdweb.

Berenbeim, Ronald. "Improper Corporate Behavior: Enron's Syllabus of Errors." Vital Speeches of the Day 68.10 (2002): 305-308.

McGowan, Diane M., and A. Thomas Brisendine. "What's next after Enron and the Sarbanes-Oxley?" Benefits Law Journal 16.1 (2003): 94-105.

Near, Janet P., and Marcia P. Miceli. "Effective Whistle-Blowing." The Academy of Management Review 20.3 (1995): 679-708.

Sims, Ronald R., and Johannes Brinkmann. "Enron Ethics (or: Culture Matters More Than Codes)." Journal of Business Ethics 45.3 (2003): 243-256. United States Securities and Exchange Commission. 23 March 2001. United States Federal Government. 11 November 2003 http://sec.gov/security.htm.

Wade, Cheryl L. "Corporate Governance Failures and the Managerial Duty of Care." St. John's Law Review 76.4 (2002): 767-785.

Watkins, Sherron. "Pristine Ethics: Who Do You Trust?" Vital Speeches of the Day 69.14 (2003): 435-439.

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