The Whistle-Blower
All over America—and on the cover of Time magazine—Sherron Watkins is heralded as the whistle-blower who exposed Enron's financial shenanigans. So why does the high-rolling crowd back in Houston consider her Public Enemy Number One?
WHEN ENRON WAS RIDING HIGH, in the fall of 1995, an accountant named Sherron Watkins competed in a tournament that her boss, Andy Fastow, had devised, a contest he called the Paint Ball War. The actions that would make both of them famous—Watkins as a corporate whistle-blower and Fastow as a balance-sheet manipulator—lay far in the future, but looking back on her Enron odyssey, Watkins now sees the Paint Ball War as a metaphor for all that would come to pass. Fastow was one of Enron's brashest Young Turks then, a numbers whiz with a ferocious ambition. The Paint Ball War, in keeping with the mercenary culture of Enron, pitted his employees against a team of Enron's outside bankers, whom Fastow often raked over the coals for failing to raise enough capital. The bankers came wanting to even the score. Fastow, however, had been transferred to a new division before the competition, and so Watkins—who worked just under him—became the prime target by default. From the moment she strode into the "war zone," she was pounded with blue paint pellets, one hitting her hard enough to draw blood. The bankers kept striking her until, soaked with blue paint, she was pronounced dead. As she limped off the battlefield, the bankers kept firing at her. "I'm already dead!" she yelled. "Stop shooting me!"
The story of the paint ball barrage appears in the new book Power Failure: The Inside Story of the Collapse of Enron, written by Texas Monthly executive editor Mimi Swartz with Watkins. The Paint Ball War was just one manifestation of the company's hyperaggressive New Economy culture, which propelled Enron to market domination but later consumed the company's best and brightest, like Fastow and Watkins. Power Failure charts the company's rise and fall: its audacious transformation of the global energy market in the early and mid-nineties and later, its hubris in believing that it could fool Wall Street by creating financial entities that concealed the company's growing debt. Although the book explains the mechanics of how the billion-dollar corporation made itself appear flush on paper even when it was careening toward bankruptcy, Power Failure is, foremost, a book about the culture of Enron. The company was doomed, the book demonstrates, by its voraciousness for profits—real or phony—and a culture of excess among employees that filtered from the top down. "They lived lives based on consumption in its myriad forms," Swartz writes in Power Failure. "Life was a game, the goal of which was to see how much could be extracted without ever paying up."
Watkins' knowledge of Enron, where she worked for nine years, informs the book, as does her perspective as an executive who tried mightily to warn the captain about the sinking ship. In August 2001 she penned the now-famous missive to chairman Ken Lay, warning of "an elaborate accounting hoax" that threatened the viability of the company, then the nation's seventh largest. "I am incredibly nervous that we will implode in a wave of accounting scandals," she wrote in a letter that proved to be prescient. After congressional investigators discovered her letter the following January, she testified before House and Senate panels, laying the blame for Enron's cooked books squarely on several of its top executives, including Fastow, who had found ways to line his own pockets while shifting billions of dollars of Enron's debt off its balance sheet. Watkins was subsequently lionized by the media, who cast her as "the Enron whistle-blower"; Time magazine put her on its cover, naming her and two other whistle-blowers "Persons of the Year." At speaking engagements around the country, she was given a heroine's welcome. But in Houston, the reaction has been mixed.
Although many former Enron employees offered Watkins words of thanks after her congressional testimony, the city's moneyed establishment has not been so grateful. They hold her, the messenger, accountable for the collapse of Enron—not the executive triumvirate of chairman Lay, CEO Jeff Skilling, and chief financial officer Fastow. Her friendships with former executive colleagues have been strained, her motives second-guessed. When she made a recent appearance at Anthony's, a restaurant frequented by Houston's power set, her presence prompted a flurry of eye rolling. At her own church, First Presbyterian, a speech she was slated to deliver to the Men's Ministry about ethics in the workplace and the lessons she had learned from Enron was canceled for fear that it might offend the Arthur Andersen and Vinson and Elkins partners in the congregation.
"I'm seen as a troublemaker by that elite group in Houston that's being critiqued by everyone now," Watkins said on a cold, rainy day in February. The 43-year-old blonde was dressed down for lunch in jeans, a periwinkle turtleneck, and pearl earrings, but she radiated the same fearsome intensity of purpose that had won her promotion after promotion at Enron. Her green eyes were resolute. "People are in disgrace, and they resent the fact that I've somehow disrupted the social order," she said. "They blame me for spoiling all the fun."
THE DAY HAD BEGUN AT Watkins' house, a slate-gray, two-story colonial with white trim and an American flag outside. Watkins—along with her husband, Rick, a vice president at an independent oil-and-gas company, and their three-year-old daughter—lives in Southampton, a tony neighborhood north of Rice University. Jeff Skilling used to live a few blocks away; Andy Fastow resides down the street. Until recently, Michael Kopper, the first Enron executive to enter a guilty plea (to charges of conspiracy to commit wire fraud and money laundering) was Watkins' nearest neighbor. In good times, Southampton was a collegial place where Enron executives enjoyed an easy camaraderie. But as subpoenas have been served and depositions taken, it has felt, to Watkins, increasingly claustrophobic. She may soon have to testify in federal court against Fastow, who has been indicted on 78 counts of fraud and money laundering, among other felonies, but inside this peculiar urban bubble, their children play in the same shady neighborhood park. Sometimes she sees him jogging through Southampton, meandering down its gracious, tree-lined streets, a onetime golden boy with nowhere to go.
Watkins grew up thirty miles from here, in Tomball, a town of 9,500 people that sits on the northern edge of Houston's suburban sprawl. A German farming community until the thirties, when oil was discovered, Tomball still had two oil derricks on Main Street when Watkins was a girl. She grew up palling around with a group of male cousins, in whose company she developed the confidence and wit that allowed her to hold her own in the corporate world. Tomball made its mark on her; when Watkins was in her twenties, Swartz writes in Power Failure, "she was one of those strapping, blond, good-humored Texas girls whose laugh could fill a room and who could drink her dates under the table." In her thirties, she was seen by her co-workers as a bull in a china shop. Now in her forties, she has a rigorous, focused mind, and when she speaks, it is always with the calm, measured assurance of a businesswoman intent on proving that she is just as capable as one of the guys, if not more so. In conversation, she reveals her predisposition for accounting; she loves the black-and-white clarity of number crunching but finds the complexities of human nature, such as the corruption of so many decent people by greed, much harder to grasp.
If there is an answer to why she, and not another Enron employee, decided to write Ken Lay about the company's deceptive accounting practices, it lies in her hometown's simple virtues. She is descended from the Germans who first settled the area, in the 1850's, and her upbringing was in keeping with their stern Lutheran values. Every Saturday when she was a girl, there were coffee klatches at her grandmother's house, where her sprawling family, the Kleins, convened. (Lyle Lovett is a Klein and Watkins' second cousin.) Sundays were spent at Salem Lutheran Church, where parishioners were taught a strict moral code that was enforced at home; when Watkins misbehaved, spankings were meted out with the back of a wooden spoon.
Her mother, Shirley, who graduated summa cum laude from the University of Texas with a degree in business administration, taught business classes at nearby Klein High School and encouraged her daughter to make a career in accounting. Watkins' first job handling money was at her uncle's shop, Klein's Supermarket, on Main Street, where she worked as a cashier. Here, accounting could not be manipulated or concealed; numbers corresponded to the actual amount of dollars and cents in the register. There were no offshore accounts, no off-the-books partnerships, no off-balance sheet debt. At Klein's, the profit margin was small, but the math was precise.
After lunch, Watkins offered to take me to Tomball. "I'll show you where I grew up," she said, climbing into her green Lexus SUV. "We'll go see my mother." The route to her mother's house is a well-traveled one; during Enron's collapse, visits to Tomball helped keep her grounded. North of Houston, Watkins turned off of Interstate 45 and headed west toward Tomball. "I don't think there was a single traffic light here when I grew up," she said, glancing out the window. She drove down Main Street, past Klein's Funeral Home and a host of other family-owned businesses, to her mother's place, a low-slung brick house near the center of town. Before Watkins sent her letter to Ken Lay, she showed it to her mother. "I told her to take out the sarcasm," Shirley Klein Harrington said with a genial smile once we sat down. Her living room was accented with hand-stitched quilts and potted red poinsettias and the smell of apple dumplings fresh out of the oven, which she served along with strong black coffee. To her right sat Watkins' stepfather, a good-natured man named H. G. "Hap" Harrington, who has been the mayor of Tomball for twelve years.
