There I sat at an EO (Entrepreneur’s Organization) dinner recently, listening to the guest speaker, Andy Fastow. If his name only rings a vague bell, here is a reminder: Andy was the CFO of Enron and one of the masterminds of the off-book financing that brought the energy giant down in a spectacular crash.

In accordance with his plea agreement, Andy has served out his sentence, forfeited $24 million, and is now hawking his story on the speaking circuit – presumably to make ends meet.

When I decided to go, I figured I would get to gawk at a convicted felon and hear him defend himself for what he did.

That’s not what I got at all.

I found a man who fully owned up to what he had done, admitted that though it wasn’t technically illegal, it was definitely wrong, and he made us think. The best word to describe his speech? CAPTIVATING, INTRIGUING, AND OUTRIGHT FASCINATING! Ok, that was five words. You get the idea. We in the audience were flat-out mesmerized.

As Andy started speaking, he talked about the difference between things being allowed and not being disallowed. And he pointed out that what he did was take advantage of loopholes that were not specifically disallowed.

He pointed out that what he did was take advantage of loopholes that were not specifically disallowed. Inhouse accountants and lawyers, outside accountants (Arthur Andersen) and lawyers, and the Board all signed off on them as being loopholes that were not prohibited. Public opinion was definitely behind him: he was hailed as CFO of the Year by CFO magazine just a year before everything unraveled. Nothing he did was prohibited. He took advantage of loopholes. In short: he excelled at playing in the gray.

Not three minutes in, somebody in the audience said, “Wait! We all pay people to play the gray.”

Andy kind of chuckled and told us we were an advanced group, he didn’t usually get to that point for another five slides. Skipping ahead, he talked about the gray.

What does it mean to be in the gray? Andy gave us a feel for it by sharing this not-so-hypothetical example.

An un-inhabitable house’s taxes are 90% lower than one that is habitable. A house that has no toilets is considered uninhabitable. Removing the toilets from an unoccupied house technically renders it uninhabitable, ergo taxes go down.

With that in mind, the owner – hold that thought, we will come back to that – removed the toilets from a second home and used the loophole to lower his tax bill by $331,000.

What sounded like a good idea then turned out not to be so great sounding later to Governor J. B. Pritzker when it was revealed in April 2019 that he and his wife were under federal investigation for what a Cook County report described as a “scheme to defraud.”

These actions weren’t prohibited, but they were definitely, as Andy taught us, “in the gray.”

After Andy was indicted, he asked his attorney what their strategy was going to be. The attorney explained it was along the lines of “I will show that everybody agreed that nothing you did was prohibited.” Then the attorney brought up the problem: the prosecutor was going to ask, “Was this right?” Andy’s attorney knew the answer of “it wasn’t prohibited” wasn’t going to be satisfactory to the prosecutor. What he would want to know was, “Would a reasonable person think what you did was right?”

Andy knew there was no way he could answer that in a way that would allow the jury to acquit him. He took the deal.

Andy kept us on the edge of our seats for more than two hours as he recounted his story. Here’s Andy’s big takeaway:

When you live in the gray, you can’t see, much less assess, the risk.

And here’s the problem: as entrepreneurs, we are almost always living in the gray. That is where we get the “edge.” That is where we maximize our advantages.

As the daughter, sister, and ex-girlfriend of a lot of attorneys, I definitely believe the law is a living, breathing thing to be pushed to the limit. I was brought up to play in the gray.

Andy is right – when you are in the gray, it is very hard to quantify the risk you are taking on. How much risk have you exposed your company to?

There are 613 Mitzvot (commandments) in the Jewish religion. Of the 613, 612 are do’s and don’ts. Number 613 is “Be holy.” There are 612 commandments that tell you how to behave, yet the 613th really supersedes all the others. And here is what it means: follow the spirit of the laws.

At some point, Andy realized that just because something is not specifically prohibited, it isn’t necessarily right, either.

I joke that Laura, the employee who has been with me the longest, is our “company conscience.” She laughs every time I tell her this, and she fulfills that role for us.

She is the one I call when I have that funny feeling deep down. You know the one. It kind of makes your tummy flutter…and your brain says, “This is not prohibited anywhere! It is an AWESOME loophole!!! Gray is not wrong!”

That’s the moment when Laura asks the questions. “What would an outsider think?” (That’s her version of the “reasonable” person). “Is that what they intended?” (Her version of “follow the spirit of the law”). And then, she very calmly helps me, and her clients, assess the risk. I am so grateful to have Laura on my team.

A few days later, I am still processing Andy’s story and lessons and approaching my clients and my business with these questions top of mind:

“How far into the gray are you?”

“How much risk have you taken on that you don’t really realize?”

“Who is serving as your conscience when you aren’t able to do that for yourself?”

“Who is advising you?”

And most important, “Do you have a Laura, or an Arthur Andersen?”

If you do not know, or if you just don’t want to admit it to yourself, call me. I will be your Laura, and together, we will get you out of the gray.

Reach out via email or call (817) 338-1011 x103.

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