The January 2012 edition of the International Association of Risk and Compliance Professionals (IARCP) newsletter - http://www.risk-compliance-association.com/
On December 2, 2011, we had the 10-year anniversary of Enron filing for Chapter 11 bankruptcy.
This bankruptcy, which was at the time the largest in corporate history, led to the creation of new laws and regulations, including the Sarbanes Oxley Act.
The Sarbanes-Oxley act was enacted on July 30, 2002, less than a year after Enron filed for Chapter 11.
Today Sarbanes Oxley is as important as it has been all these years. Amended by the Dodd Frank Act, the Sarbanes Oxley rules continue to apply and change the lives of hundreds of thousands of professionals around the world.
Today we will remember what has been said about the role of professionals and the board of directors during one of the most interesting investigations. We will also see that, although we had so many laws and regulations, many of the problems we had in Enron, continue to haunt boards, corporate officers and shareholders.
Enron’s board of directors was criticized for being asleep at the wheel after the firm collapsed. Today we will read the interesting opinion of one of these directors, a very good and very experienced one.
THE ROLE OF THE BOARD OF DIRECTORS IN ENRON’S COLLAPSE
HEARING BEFORE THE PERMANENT SUBCOMMITTEE OF INVESTIGATIONS OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, UNITED STATES SENATE, MAY 7, 2002
On December 2, 2001, the seventh largest corporation in America collapsed.
Its stock, having plummeted from $80 a share to practically nothing in less than 10 months, the reins of what was once a high-flying company of $100 billion in gross revenues and 20,000 employees were handed over to a Federal bankruptcy judge.
That collapse has rolled like a tidal wave across the corporate boardrooms of America, across Wall Street, and across the entire investing community, which now includes over half of U.S. households.
With this tidal wave, we are all asking two questions: What happened at Enron, and could it happen again?
Today, we hope to help answer the first question in order to ensure that the answer to the second question will become ‘‘no.’’
One of the key players responsible for overseeing the operations of our publicly held corporations is the Board of Directors.
Directors are charged by law to be the fiduciaries, the trustees who protect the interests of the corporate shareholders.
In that capacity, they are supposed to exercise their best business judgment on behalf of those shareholders.
They are supposed to be independent.
And while they are not expected to be detectives, they are expected to ask tough questions of management, to probe opaque answers, and to display sufficient skill and fortitude to say no to transactions that do not look right.
Along with management and the auditors, the Board shares the responsibility to provide to the company’s shareholders a financial statement that is a fair representation of the financial position of the company.
As the Second Circuit Court of Appeals held in a widely quoted opinion, technical compliance with Generally Accepted Accounting Principles may be evidence of acting in good faith, but it is not necessarily conclusive:
The ‘‘critical test,’’ the court said, is ‘‘whether the financial statements as a whole fairly present the financial position’’ of a company.
Enron’s financial statements did not, and the Board’s role in that failure is before us.
Today, we have five key members from the Enron Board of Directors to tell us what they knew about the financial condition of Enron, when they knew it, and what they did about it.
In other words, what role did the Board play in these events?
The Subcommittee issued over 50 subpoenas for documents to Enron, Arthur Andersen, members of the Enron Board, and officers of Enron.
Staff has reviewed about 300 boxes of documents to date, and conducted interviews with 13 current and past Board members.
Each Board member complied with the document subpoenas and willingly appeared for interviews.
We appreciate their cooperation and their voluntary appearance today.
We have found that when you pare down the hundreds of incredibly complex financial transactions that were the hallmark of Enron, you realize that many were nothing more than smoke-and mirrors bookkeeping tricks, designed to artificially inflate earnings rather than achieve economic objectives, to hide losses rather than disclose business failures to the public, to deceive more than inform.
George Lekatis is the General Manager and Chief Compliance Consultant of Compliance LLC, a leading provider of risk and compliance training and executive coaching in 36 countries.
George has more than 17,000 hours experience as a professional speaker and seminar leader. He has worked for more than 16 years as a management consultant and educator and has demonstrated exceptional presentation and communication skills.
George is the president of the Basel ii Compliance Professionals Association (BCPA, http://www.basel-ii-association.com), the largest association of Basel ii professionals in the world, and the Basel iii Compliance Professionals Association (BiiiCPA, http://www.basel-iii-association.com), the largest association of Basel iii professionals in the world.
George is also president of the Sarbanes Oxley Compliance Professionals Association (SOXCPA, http://www.sarbanes-oxley-association.com), the largest Association of Sarbanes Oxley professionals in the world.
George is now developing the International Association of Risk and Compliance Professionals (IARCP) that already has many thousands of members (http://www.risk-compliance-association.com)
The Certified Risk and Compliance Management Professional (CRCMP) distance learning and online certification program of the IARCP is a preferred certificate, in order to find a job in companies like IBM, Accenture etc. You may find more if you search (CRCMP preferred certificate) using any search engine.
George is an expert witness, qualified to investigate and testify about risk and compliance management standards, policies, procedures, best practices, due care and due diligence.