Confessions of an Enron Executive: Is Your Reputation at Risk?

1. Confessions of an Enron Executive:Is Your Reputation at Risk? Lynn BrewerEnterprise Risk Management ConferenceThe Institute of Internal Auditors August 27-29, 2003 (Orlando, FL) Sponsored by www.ethicspoint.com

2. FALSE PROPHET$ “We have found that companies that have a written vision and values statement have a far greater Return On Investment than those that don’t.” Jeff Skilling, Enron President All Employee Meeting (April, 1998) Launch of New Vision & Values

3. Lynn Brewer • Chairman – International Society of Ethics Examiners (ISEE) • Author – “House of Cards: Confessions of an Enron Executive”

4. FALSE PROFIT$ "Everyone is so hung up on these partnerships, but 10 people alone cannot pull off a $60bn hoax. You need lieutenants." -- Former Enron employee

5. Is your Reputation at Risk?

6. Reputation Risk Management

7. Post Enron Corporate Governance Sarbanes-Oxley

8. CRITICAL RISK MITIGATION ACTION STEPS

9. Critical Risk MitigationAction Step 1 SEPARATE MANAGEMENTFROM OVERSIGHT

10. Separate Management and Oversight

11. Separate Management and Oversight SEPARATE MANAGEMENTFROM OVERSIGHT The Enron Way. . .

12. Critical Risk MitigationAction Step 2 PERFORM COMPREHENSIVE RISK ASSESSMENT

13. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT SEPARATE MANAGEMENTFROM OVERSIGHT Perform a Comprehensive Risk Assessment

14. Critical Risk MitigationAction Step 3 FORMULATE POLICIESAND COMMUNICATE CODE OF CONDUCT

15. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT FORMULATE POLICIESAND COMMUNICATECODE OF CONDUCT SEPARATE MANAGEMENTFROM OVERSIGHT Formulate Polices and Communicate a Code of Conduct

16. Enron’s Vision & Values

17. Critical Risk MitigationAction Step 4 CONFIDENTIAL AND ANONYMOUS REPORTING SYSTEM

18. Whistleblowers. . . • “The very essence of corporatism is minding your own business. And the very essence of individualism is the refusal to mind your own business.” • John Ralston Saul • “Criticism is the only helpmate we have which, while disclosing our inadequacies, can at the same time awake us to the desire for greater improvement.” • Friedrich Nicolai

19. SEC Final Ruling • . . . A company employee or other individual may be reticent to report concerns regarding questionable accounting or other matters for fear of management reprisal. . . • Accordingly, under the listing standards called for by our final rules, each audit committee must establish procedures for: • The receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls or auditing matters, and • The confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.

20. Post Enron Corporate GovernanceWhat does the SEC have to Say? • “Similarly, we are not adopting the suggestion of a few commenters that, despite the statutory language, the requirement should be limited to only employees . . .” • “While the scope of the requirements generally includes complaints received by a listed issuerregardless of source, Exchange Act Section 10A(m)(4)(B) and the relevant portion of the rules referring to confidential, anonymous submission of concerns are directed to employees of the issuer.” Sarbanes-Oxley

21. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT FORMULATE POLICIESAND COMMUNICATECODE OF CONDUCT SEPARATE MANAGEMENTFROM OVERSIGHT CONFIDENTIAL AND ANONYMOUS REPORTING SYSTEM Confidential and Anonymous Reporting System

22. Compliant Reporting Solution

23. Critical Risk MitigationAction Step 5 PLAN RESPONSE TO REPORTS OF MISCONDUCT

24. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT FORMULATE POLICIESAND COMMUNICATECODE OF CONDUCT SEPARATE MANAGEMENTFROM OVERSIGHT CONFIDENTIAL AND ANONYMOUS REPORTING SYSTEM PLAN RESPONSE TOREPORTSOF MISCONDUCT Plan Your Response to Reports of Misconduct BEFORE they happen.

25. Non-action can be costly • Coke Confirms Product Test Was Rigged • Source: Wall Street Journal (June 18, 2003) • "Coke had this information almost six months ago; it wasn't until they were confronted by the possibility of a lawsuit that they decided to investigate,“ • Lawyer for Coca-Cola whistleblower • Result: Coke lost $15,000,000 in shareholder value in the three weeks following the announcement.

27. Critical Risk MitigationAction Step 6 ASSESS WEAKNESSES ININTERNAL CONTROLS

28. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT FORMULATE POLICIESAND COMMUNICATECODE OF CONDUCT SEPARATE MANAGEMENTFROM OVERSIGHT CONFIDENTIAL AND ANONYMOUS REPORTING SYSTEM PLAN RESPONSE TOREPORTSOF MISCONDUCT ASSESS WEAKNESSESIN INTERNAL CONTROLS Assess Weaknesses in Internal Controls

29. Critical Risk MitigationAction Step 7 REASSESS RISK, POLICIESAND CONTROLSOFTEN

30. The Enron Way. . . COMPREHENSIVERISK ASSESSMENT FORMULATE POLICIESAND COMMUNICATECODE OF CONDUCT SEPARATE MANAGEMENTFROM OVERSIGHT CONFIDENTIAL AND ANONYMOUS REPORTING SYSTEM PLAN RESPONSE TOREPORTSOF MISCONDUCT REASSESS RISK, POLICIESAND CONTROLSOFTEN ASSESS WEAKNESSESIN INTERNAL CONTROLS Reassess Risk, Policies and Controls Often

31. Best Business Practices • “While the government has enacted legislation aimed at establishing greater organizational oversight and control, it is up to the business and organizational communities to take the lead in structuring confidence restoring solutions.” Open Compliance and Ethics Group

32. Best Business Practices • NACDNational Association of Corporate Directors • ICAAInvestment Counselors of America • ISEEInternational Society of Ethics Examiners • OCEGOpen Compliance and Ethics Group • Deloitte & Touche • Ernest & Young • Price Waterhouse Coopers • KMPG

33. Questions & Feedback Lynn BrewerChairmanInternational Society of Ethics Examiners Post Office Box 12686Olympia, WA 98508(253) 843-0202