Jim DeLoach, writing recently for NACD, reminded me: Jim DeLoach’s assessment of Enron is a classic. He concluded that Enron was the leading edge of EWRM. In fact, he said, Enron was the best he had encountered. He wrote the book. He found Enron and its risk management competent, accountable, tested against business performance. Enron’s CRO had a 150 risk management personnel and a $30 million budget. There could not have been more internal and external auditors there at Enron. But they all drank the ‘Kool-Aid ™.’ And so did the markets.
Look at history: Jim DeLoach, then partner at Arthur Andersen, Global Leader of Business Risk Management Competency Development Center, and now at Protiviti, wrote: “We [have not] encountered an industrial organization further along in the journey towards [enterprise-wide] risk management than Enron.” p. 187. (see Les Coleman, “Risk Strategies”. DeLoach published his extensive case study of Enron, “Case 5: Enron: The Leading Edge in EWRM” in his 2000 book, Enterprise-Wide Risk Management: Strategies for Linking Risk and Opportunity, (New York, Financial Times Prentice Hall, 2000.) As Alix Stuart pointed out in CFO Magazine, “Enron’s trading operations… were cited as a model for enterprisewide risk management in former Andersen partner James DeLoach’s 2000 book on the topic.” (See “Sticker Shock”, CFO, September 1, 2003, p.4 (online). And from an ex-Enron employee, alias SourAaron, came this priceless post: “”We take risks to generate profit, but we never bet the farm” – Richard Causey – page 188 – Enterprise-wide Risk Management – James W. Deloach. ISBN 0 273 64414 9.”
So, was “Enron: The Leading Edge in EWRM” temporary risk management myopia? How could it have been? Andersen had already listed Enron as a “maximum risk” client. Squires et alia.,p.143. Remember that Andersen’s other disasters and assorted SEC/DOJ and other investigations included:
Worldcom, Qwest, Global Crossing, Waste Management, Sunbeam, and Dynegy, Freddie Mac, Colonial Realty, Baptist Foundation of Arizona, Boston Chicken, First Connecticut, Halliburton, McKesson, SCI, consulting client Department 56, and the mind-bogglingly vast Enron team shredding in Houston, Chicago, Portland, and London.(See Brickley’s Table 1, cite below.) Remember the damning email to the AA risk management partner, Odom. Andersen certainly understood its own risk and the risk of its clients.
The DeLoach book has been pretty much buried, but you will find many references elsewhere, such as in “Risk Strategies” by Les Coleman, who also notes that Enron’s CRO had a group of 150 personnel and a $30 million budget. p.204.
Kathleen F. Brickley, “Andersen’s Fall From Grace” – Wash U Law Repository – Washington http://digitalcommons.law.wustl.edu/lawreview
JS Kinsler, “Arthur Andersen and the Temple of Doom” – Southwestern Law School http://dev-web.swlaw.edu/pdfs/lr/37_1kinsler.pdf
Squires, Susan E, “Inside Arthur Andersen – Shifting Values, Unexpected Consequences” http://www.scribd.com/doc/7113367/Inside-Arthur-Andersen-Shifting-Values-Unexpected-Consequences
“Enterprise-wide risk management : strategies for linking risk and opportunity”
Les Coleman: Risk Strategies: Dialling Up Optimum Firm Risk http://books.google.com/books?id=23LmLXp9NjcC&pg=PA204&lpg=PA204&dq=Risk+Strategies%22+by+Les+Coleman+deloach+2000+187&source=bl&ots=PJZoAtktUs&sig=voWyLpZl1x7cddmRp3kpbVYkguM&hl=en&sa=X&ei=fzVGUebRBdOk4AOHyoD4BQ&sqi=2&ved=0CDUQ6AEwAQ#v=onepage&q=Risk%20Strategies%22%20by%20Les%20Coleman%20deloach%202000%20187&f=false