Does the company you’re invested in do everything by the book? If so, that could be a problem.
That’s because what’s by the book — in other words, what’s within a company’s right to do — doesn’t necessarily align with what’s principled. It took jail time for Andy Fastow, former CFO of Enron, to see that.
Sentenced to six years in jail for his part in Enron’s collapse, he’s now a frequent speaker on ethics. He spoke via Skype this week at the National Institute on U.S.-Canadian Securities Litigation in Toronto.
Read: How to blow the whistle
The transactions he made to manipulate Enron’s financial statements were approved by the board, with one board member going so far as to call him a genius, he said.
At the conference, he put the audience in the hot seat when he presented examples of company data, such as the cost of oil and so-called conservative return projections. The audience agreed they were materially misleading to investors and thus unethical.
But, when given further information — the data was technically within calculation guidelines enumerated by regulators, for example — the audience had the opposite reaction, with no one raising their hands to indicate the numbers were misleading or unethical.
The changed viewpoints underscore the systemic challenges that could potentially harm investors. There will always be grey areas that regulation can’t fix, Fastow said.