It's been eight years since Enron collapsed into bankruptcy, but memories linger in corporate boardrooms, where directors are charged with preventing a reprise of the self-dealing and accounting scandals that sunk the energy company. It's a set of responsibilities William Powers understands well: before becoming president of the University of Texas in 2006, Powers—a lawyer and professor—was tapped by Enron's board to lead a special investigation to determine what went wrong and why. In the latest of his series of interviews as part of Newsweek's partnership with the Kaplan University M.B.A. program, Newsweek chairman Richard M. Smith spoke with Powers about Enron's impact. Edited excerpts: (Article continued below...)
You began investigating Enron before the depth of its problems were clear. When did you sense the scope of the issues?
The first day. I got a call from our team's chief lawyer and our chief accountant. They said I need to look at the South Hampton transaction—[a deal in which] four Enron employees had invested $5,000 and six months later had a $1 million return. That suggested there was something quite unusual going on.
Seven years later, what are the lasting lessons of Enron?
There were two or three. This was a very young and inexperienced management team, and I think both management—and possibly the board—thought the good times could never end. That's one lesson: the good times do end. We're going through that right now. The second lesson is that you need to surround yourself with good people who are competent, honest—and are not going to take shortcuts. I think the board at Enron never tried to do anything wrong. I think they might not have paid enough attention to some things that were going on, but I think that in a portion of the management there were very talented people with low integrity.
Fast-forward to today. How would you be a different board member than you might have been eight years ago?
If I don't understand a transaction as a board member, I wouldn't be so likely to say, "Well, I don't want to make a fool of myself by asking a stupid question." I would ask that question. And I think board members I've seen are much more willing to ask questions, to say, "I just don't understand this. You've got to explain it to me." I think the other thing is evaluating the people, not just their talent, but their culture—including how they conduct the rest of their lives. Are they honest? Are they trustworthy?
How could that function ever have been lost in board consideration over the years?
I think it was lost at Enron because many of the people who were on the board had been there for a long time. They had grown up with the company; they had come to trust the company and had disengaged a bit.
In the 1980s it was the S&L crisis. In the late 1990s it was Enron and WorldCom. Now we're talking about AIG and some of the things that were happening on Wall Street. Each one of these things produces a regulatory response. But is it inevitable that in every generation or half generation, some part of the financial system blows up?
I'd like to think it's not inevitable, but certainly it's likely that each generation is going to forget its values and get caught up in the fact that markets can do nothing but go up. I've been impressed in my lifetime by the ability of American culture and the American economy to learn the lessons, then unfortunately forget them a half a generation later.
Do you think American business is more or less ethical than it was 10 years ago, or 50 years ago?
I think that American business overwhelmingly is the most transparent, the most honest, the most trustworthy of any economy in the world. I spent a lot of time with boards of Fortune 500 companies and small entrepreneurs after Enron. And I was really very impressed with the controls they had in place. I did not get the impression that the dishonesty that went on with the management at Enron was widespread, even at that point. And I continue to think that American business did learn those lessons. But they need to be learned over and over again—they need to be reminded.
As an educator, how do you shape students' values and world view?
Ultimately it's done by instilling in young people the idea that they should do honest, hard work for a fair return, whether that's a financial return or the other kinds of returns we get. Work harder on your term paper and you'll get a better grade. We can teach students that earning rewards fairly is the way to live your life, rather than a get-rich-quick mentality.