Where HR meets risk management

by 14 Oct 2008

A number of years ago I interviewed Stephen Cooper, who was the interim CEO for Enron in the wake of its spectacular collapse in 2001. Prior to this, it was frequently named as one of America’s top 10 most admired corporations and best places to work, and its board was acclaimed as one of the US’s best five, according to Fortune magazine.

While Enron was considered a phenomenon in its heyday, a highly decentralised decision-making and financial control structure made it virtually impossible to get a clear and coherent understanding of the corporation.

In the wake of a number of corporate collapses since Enron, governments and regulators across the world have scrambled to put a raft of laws and regulations in place to try and put the brakes on such collapses. Cooper warned against a prescriptive approach to corporate governance, and said that it was more a state of mind.

While more laws and regulations make it more challenging for executives and employees who may not necessarily have a company’s best interests at heart, Cooper said: “You can put anything you want in a contract, but if someone wants to wiggle around it, they’ll find a way.”

The culture of Enron played a big role in its downfall, with an unbelievably aggressive approach to doing business, particularly in trading operations. Its senior management was adamant about sustaining a too-good-to-be-true performance, and there was a tremendous lack of focus, clarity and accountability.

There have been a number of collapses across Australia where corporate cultures not too dissimilar to those of Enron have played a significant role. It’s well established that the CEO, followed by the executive team, largely set the course of a corporate culture.

The Commonwealth Criminal Code Act 2005, defines corporate culture as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.

When it comes to risk management and corporate governance, the letter of the law must be followed. Potentially more important is the spirit of the law that a company’s leaders must role model for managers and employees at all levels of an organisation.