After reading the The Rise and Fall of Enron (B), it is remarkable how potential issues were just glossed over when it came senior management officials. Andrew Fastow (CFO) was the most obvious example of this in his role in the LJM partnerships. I found it remarkably naive of Jeffrey Skilling (CEO) to just dismiss Fastow’s potential conflicts of interest so simply. Skilling’s reasoning that ‘Fastow had larger economic stakes in Enron’ and therefore would always work in the best interest of the company seems extraordinarily dumb and short-sighted. The high-volume of off-sheet balance sheet partnerships used by Enron should have meant that higher internal controls would be in place and maintained. The fact that Jeff McMahon (Treasurer) was negotiating with his boss (Fastow), who was representing the other side of the table, should put up multiple common-sense red flags up in terms of ethics and conflicts of interest.
The other fascinating takeaway I had was just how interwoven the auditors of Arthur Andersen were with the culture of Enron. I’m not going to pretend to be any type of auditing or assurance expert, but the fact that Andersen accountants were sometimes essentially performing in-house accountant functions feels like something the Audit and Compliance Committee (a principal committee of the board) should be worried about. In addition, the fact that there were so many employees brought over from Andersen and that Andersen was reporting issues, but signing off on them anyway should have caught the attention of senior officials of Arthur Andersen.