What Enron and the IRS Have in Common

Ethical meltdowns are rarely the work of a few rogue workers. They take their cues from toxic leadership.

By STEVEN LAW

VERY INTERESTING ANALYSIS....

Any good CEO will tell you that ethical meltdowns like the IRS political-targeting scandal are rarely the work of a few rogue employees. Such messes are the result of a toxic culture that has been allowed to fester.

When I was chief of staff at the Labor Department, we investigated the ethical and financial disintegration of Enron in connection with the collapse of its pension funds in 2001. What we found was a small circle of certifiably bad actors who acted without regard for the law or for anyone else. Surrounding this inner circle was a culture that gave these employees tacit permission to run roughshod over others and break the law.

While lower-level Enron employees did their jobs honorably, senior management cultivated a malignant esprit de corps that corroded the company's ethics. The C-Suite view was that no one was smarter, faster or more aggressive than these executives. Mortals couldn't possibly understand what they did. That belief created its own closed-system logic, leading to deceptive accounting schemes, self-dealing and, ultimately, a battery of criminal convictions for Enron's top brass.

What does Enron's collapse have to tell us about the shocking revelations of IRS political targeting?

Plenty. IRS senior managers like acting Commissioner Steven Miller insist that the illicit behavior was the work of a handful of rogue employees. The trouble is that even though we are starting to learn who those employees are and who supervised them, we still don't know what orders they were acting on, why no one stopped them and why they thought it was appropriate to selectively harass private citizens on the basis of their using such dangerous labels as "Tea Party," "liberty" and "patriot."

These IRS employees believed that they had implicit consent to ideologically profile nonprofit advocacy groups. Where did that come from? Lois Lerner—the IRS official who headed the division overseeing tax-exempt groups and who is now on administrative leave—certainly didn't elucidate matters when she exercised her right against self-incrimination rather than testify before Congress on May 22.

What the Enron scandal teaches is that such implicit permission can be communicated by a toxic culture fostered by the company's top brass.

Consider the tone that has been set by the person at the very top of the government the IRS serves. President Obama is the first president since Nixon to refer to political opponents as "enemies," in October 2010, apologizing only after a week of intense criticism. Around the same time, he assailed conservative advocacy groups as a "threat to democracy." As the nation's top law enforcer, Mr. Obama singled out groups such as Americans for Prosperity by name and suggested they could be taking illegal foreign funds. That's toxic culture from the C-Suite.

Next, at least 10 Democratic senators publicly pressured the IRS to do precisely what it is now being excoriated for: harassing center-right groups for conducting the same spirited advocacy that environmental groups and labor unions have done for years. I know something about this: A month before the 2010 election, Sen. Dick Durbin sent a letter urging the IRS to investigate the advocacy group I head, Crossroads GPS. Why us and not scores of liberal groups that do exactly what we do? Mr. Durbin claims he singled us out because we were raising so much money.

Now that we see how ugly ideological profiling by the IRS looks, some of these senators are in full damage control. On May 23, Michigan Sen. Carl Levin dropped the bombshell that his subcommittee has been in constant contact with the overseers of the IRS political-targeting scandal since it started, and even discussed the applications of "certain" specific groups. Mr. Levin now says he had an "incomplete account" of what was going on under his subcommittee's nose. Does he mean he had no idea the IRS was targeting conservative groups? If senators and their staffs were leaning on the IRS to go after specific advocacy groups, then Congress is responsible for helping to feed this culture.

Finally, it's important to focus on the political stew that many IRS employees marinate in as members of the National Treasury Employees Union, which is headed by Colleen Kelley. Ms. Kelley has publicly vilified "extreme Tea Party elements," portraying their agenda as a threat to the IRS workers her union represents. In 2011, Ms. Kelley mobilized IRS employees to "lean on" members of Congress against tea-party-backed spending cuts, boasting that "anywhere there's an IRS service center, we have four to eight thousand" union members. When you have a union boss who demonizes private citizens and conscripts front-line IRS employees as boots-on-the-ground activists, you've got toxic culture from the ground up.

The point of all this is that reforming the IRS will require a lot more than disciplining a few rogue employees. The entire command structure that ordered, acquiesced to or overlooked the political-targeting campaign needs to be uprooted and replaced.

Congress's role in corrupting the IRS must be investigated, and tough new penalties should be imposed on members of Congress who try to call in IRS drone strikes on perceived political enemies. Hatch Act restrictions on the ability of IRS employees to engage in politics—recently watered down by Congress—should be re-examined in light of the IRS's politically aggressive union.

As an old political hand once told me, "There's never just one cockroach." The IRS scandal wasn't the work of a few isolated employees. It was fostered by a culture that many powerful people in Washington helped create—and it will take time and hard-nosed action to eradicate it.

Mr. Law is the president and CEO of Crossroads GPS.

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