Enron and Risk Management Enron is one company that did not practice good risk management following its reinvention of itself as a financial/energy trading giant. This paper will describe what happened to Enron and show how its problems could have been avoided using sound risk management regarding transparency and accountability.

Before Ken Lay gave Enron over to the new, "innovative" leaders Jeff Skilling and Andy Fastow, it had been a basic energy provider -- transparent and accountable. It had nothing to hide because it was doing nothing wrong and therefore it did not need opaque accounting practices. All that changed when Skilling came aboard and opened Lay's eyes to the "possibilities" afforded by mark-to-market accounting.

Enron's management team, led by Ken Lay, Jeff Skilling, and Andy Fastow, was a dynamic, powerful force, with a strategy that few understood but which, according to the books, appeared to be making everyone money hand over fist. The problem was that there was no transparency or accountability in the risk management strategy. Enron was changing as an organization, essentially moving from energy provider to finance, and leadership faced new ethical challenges as a result: how should it portray itself to investors and to employees? Enron's leaders (Lay, Skilling, Fastow) decided to embark on a Ponzi-like scheme which was misleading for investors and employees. Elkind and McLean (2013), for example,...

127). Skilling saw the same thing; his apprentice, Andy Fastow, Enron's CFO, was given the job of covering up these financials as well as the fact that Enron was "$30 billion in debt" (Elkind, McLean, 2013, p. 128). Here was a clear case of fabricating the financials in order to appear clean -- and Skilling and Fastow excelled at appearing fresh and clean; in fact, they were well-known for being "likeable" guys. Yet, the problem of likeability at Enron was that the definition was not rooted in qualities and attributes that are used to give the term meaning. "Likeability" at Enron had to do with "getting ahead," being the "life of the party," making money, and deceiving anyone and everyone who posed a possible threat to the financial scheme. This was not risk management. This was bad management. Lay should have intervened and terminated Fastow, but Skilling defended Fastow's behavior by explaining it as unorthodox but innovative. Had Lay insisted on transparency and accountability and listened to those who brought up misgivings about the accounting practices of Fastow, he might have staved off disaster. But Lay feared what the company would look like were it to really come clean. Worse, he feared it could all collapse.
Skilling and Fastow prided themselves on their ability to hide and manipulate data rather than on their ability to be transparent,…