The same week Enron Corp. founder Kenneth Lay told jurors that he did not intentionally deceive investors and analysts, another former Enron executive told the insurance and risk management community that Enron suffered corruption and complacency in the months before the company’s collapse.
Speaking to attendees at the Risk and Insurance Management Society conference in Honolulu, Lynn Brewer, a former Enron executive and currently founding chairman of The Integrity Institute Inc., shared her experiences in discovering fraud at Enron and the dilemma she faced between choosing to become a whistleblower or listening to her supervisors.
“There are two equally destructive forces in every corporation: those who will commit fraud and those who will be complacent toward it,” Brewer said.
According to Brewer, although former Enron Chief Executive Jeffrey Skilling never told company employees to “cook the books, he said, ‘find me the revenue.'” That pressure, she said, led to unethical company decisions to hide accounting practices and poor business operations.
Brewer said when she initially noticed fraud at Enron, she was complacent because of fear. She eventually became comfortable with the payoff, making $2,000 on stock options. “Some days, I was making $20,000 or $30,000,” she said, apologizing that by standing back, she was equally guilty as those who committed the fraud.
“There are really good people who do horrendous things simply to solve business problems,” she said. “Right and wrong is not black and white. Often, the decisions that we make at the time seem like the lesser of two evils.” Many times, business decisions are made quickly, and risk managers are involved in decisions when it’s too late, she said.
Enron is a good case study for risk managers and the insurance community, Brewer indicated. “Misconduct can interfere with business continuity … These things hit like a tsunami, and then it’s very difficult to regain shareholder value and trust.”
Brewer said there were probably 20 to 40 people at Enron who actually committed fraud, but two-thirds sat back and watched it. “The risk is in the human beings that make up your companies,” she said, advising the risk and insurance industry to listen to its employees.
In 2001, there were 6,400 whistleblowing reports made every month to the U.S. Securities and Exchange Commission. In 2004, after Enron’s collapse, there are 40,000 reports made monthly, according to Brewer. Risk managers also should be aware that employees also don’t trust internal whistleblowing systems. “Companies are more likely to receive information about fraud when they receive a letter from the SEC. Those of you that insure companies, that is the risk,” Brewer explained.
Her advice was for companies and risk managers to analyze their whistleblowing reports and to examine how many people are leaving the company. “That will tell you a story about what’s going on beyond the bottom line,” Brewer said.
Brewer was the RIMS conference general session speaker on Monday, April 24, 2006, in Honolulu. After her speech, ‘Grey Matters: Right and Wrong is Not Always Black and White – The Challenge to Risk Managers,” she autographed copies of her book, “Confessions of an Enron Executive.”
RIMS is being held April 23-24, 2006, at the Honolulu Convention Center.
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