The Smartest Guys in The Room

Enron.

This book discovers the rise and fall of Enron. Kenneth Lay, who was the CEO of this company. Kenneth Lay was born on April 15, 1942 in Tyrone Missouri. Kenneth Lay began is life in poverty. His parents owned a feed store that went out of business. Kenneth Lay didn’t live in a house with indoor plumbing until he was a the mere age of 11. He had a rough childhood, with many household responsibilities like working hard to drive tractors and plowing fields. He always had a dream that one day he would become rich in commerce.

Lay was always a good student. He attended the University of Missouri on a scholarship. He became an economics major due to an economic class taught by his fromer professor Pinkey Walker. It was because of Walker that Kenneth Lay purused his masters degree so that he would have endless oppurtunties to become successful In business .

He received his bachelor and masters degrees in economics from the University of Missouri. He was also military drafted and later went on to Navy officers candidate school. From 1968-1971 he served as an economist. In 1970 after earning his PHD in economics at the university of Houton he bagan working as energy deputy under the secretary for the United States.

After graduation Kenneth worked for couple of years for a company called Humble Oil which later Exxon. Kenneth held many different jobs. From 1965-1968 he worked at Humble Oil. From 1968-1968 he worked in the US navy as a supply officer. Form 1969-1973 he worked as a lecturer and an assistant professor. From 1971-1972 he worked in the Federal Power commission as commissioners assistant. He held many other job titles in his life span. He became of such a high stature that he turned down an off r to join older George Bush’s cabinet. He was naturally a nice person, very few people resented him. It wasn’t until the fall of Enron where his world came crashing down. Despite controversy the CEO of Enron won many awards. He won a Leadership Award, Private Sector Concil, Business Hall of Fame in Texas, 1997. Horatio Alger Award, Horatio Award, & Association of Distinguished Americans.Enron stemmed from a small company by the name of Houston Natural Gas, joined by a former Exxon employee, Kenneth Lay, in 1984. As Houston Natural Gas was a relatively small firm, the progression of bigger companies and the stock market threatened to wipe the company off the map. However, with Lay in charge, the company was able to fend off any buyouts, as well as expand twofold.. In 1986, after many changes and more growth, the firm changes its name to Enron and relocated to Lay’s hometown of Houston, Texas. At this time Enron was both a natural gas and oil company. The company specialized in the moving of natural gas through its pipelines, extending thousands of miles across the continental United States. As the firm continued to flourish, it reformed its commercial approach by becoming a leading producer and distributer of energy in both the United States and the U.K., as well as becoming more involved in the trading market. Ambition and determination truly carried Enron to new heights, helping it to become one of the most powerful and innovative companies in the United States, even being “voted Most Innovative among FORTUNE'S Most Admired Companies” for “six years running” . However, with much success, temptation arose, and good intentions were led astray. Damaging arrogance, risky behavior, and deception ultimately warranted the demise of the mighty Enron.

Enron was often praised for pioneering a more libertarian view, an influence often accredited to a man by the name of Jeffery Skilling. Being the CEO of an Enron secondary company, “Enron Finance, Skilling possessed the ability to directly influence the very structure of the natural gas market. As such, Enron strived to commoditize every service and product it possibly could, dabbling in everything from gas, electric, water, oil, and even broadband. Before long, the firm had branched into the stock market, becoming a full-on trading enterprise.. Market-to-market accounting is a method that “rather than accounts reflecting actual profit, mark-to-market accounting allows for accounts to reflect estimated future profits” which would provide explanation for the corporation’s amazingly precise calculations of future earnings. However, throughout the rather ample gross earnings and overall success, the company still experienced financial struggle. In 1987, for example, the company reported a loss of “$85 million” with a “true loss of $142 – 190 million” Of course this instant, as well as many others, was quickly covered up, thus creating the illusion that such losses were not as extreme as they actually were. Enron’s CFO, Andrew Fastow, had applied a tactic where monetary values which stemmed from a compound system of commercial bodies were manipulated in the company’s favor. The purpose of this tactic was to form an illusion of stable revenue for the firm, as previously mentioned. In fact, Fastow was said to have “created and served as director of some of the companies involved” (Probert) in this illusive financial strategy. Nevertheless, the monetarist facade fashioned by means of Enron’s ringleaders would remain undoubted for several seemingly prosperous years to come. So much so, that many employees inside the firm had nary a clue to the true nature of the circumstances.

In a turn of events that would send shockwaves throughout the industry, the mega-enterprise would find itself exposing its own fraudulence for the entire world to witness. After all, it was only a matter of time before the reality of Enron’s unethical conduct would backfire in such an immensely damaging way. Come 2001, the formerly monumental enterprise would find its integrity being questioned, in such a way that its stock had begun falling immensely, having ascended from “$80 at the beginning of the year to the low 40s” (Helyar) by mid-august. As well as a rather questionable means of gaining income, Enron also had a reputation for candid brutality. It was testified that the firm had an in-house system in which personnel “attempted to crush not just outsiders but each other” in order to climb the ranks. Speculations from outside sources first arose when Jeff Skilling himself resigned from his newly obtained position of CEO. However, Ken Lay, retaking his role as CEO, had formally denied these withdrawals from the corporation as having to do with any financial issues, saying that “there were no "accounting issues, trading issues, or reserve issues" at Enron Regardless, it was believed that Skilling had already suspected the imminent failure and exposure of the company, opting to leave it all behind him in order to avoid consequence. Before long, many major shareholders, including Enron’s own executives, started selling or trading off all Enron-related stock, an indicator of inevitable distress within the firm. Not long after, The Wall Street journal, as well as many other news outlets, initiated a relentless campaign against the corporation, specifically targeting Andrew Fastow. Fastow was thrown under the bus, as it were, when it was discovered that he had periodically skimmed off some of Enron’s already falsified income for himself. Lay attempted to rebuild his company’s crumbling credibility from then on, but these efforts would prove to be fruitless. Soon after, Enron had officially declared bankruptcy, provoking the revelation of the largest scandal in the modern business world.

In the succeeding years, the entireties of Enron’s effects would be sold in an attempt to pay off its massive debts, which would include an “estimated [of] $67 billion” to the “company’s 20,000 creditors However, it was estimated that those debt holders only received “20% to 40%” (Helyar) of the money due to them. Along with this, Enron’s entire workforce had lost their jobs; many of them were ultimately taken to court on the same charges as other big name offenders in the scandal. Andrew Fastow was sentenced to six years on criminal charges after testifying against Kenneth Lay and Jeffery Skilling, in 2006. Both Skilling and Lay, however, refused to admit to any wrongdoing on their parts. Their hearings, which were very much publicized, concentrated mainly on whether or not fraud had actually taken place within the company and its environments, and to what extent. These cases had called for the parties involved having “knowing, willful, [and] intentional misconduct”. At first, this seemed like a long shot for the prosecutors, because Enron had their auditor, Arthur Anderson, approving every financially motivated decision and action. In the end, however, such endeavors demonstrated even more failure for the mega-corporation. Skilling was “sentenced to 24 years… on 19 counts”. Lay was also sentenced to prison time, but had passed away before any time could be served. Lastly, Arthur Anderson itself was disbanded, along with all of Enron’s other auditors, and though it tried again, it never was fully able to rebuild its reputation as a result of its involvement in the scandal. Thus, through many trails and investigations, the once powerful and innovative mega-corporation, Enron, had finally fallen.

Since Enron has fallen, business education has been targeted, with truly respectable intentions. In order to be right and just in the business world, especially as an accountant or manager, one must not only learn ethical behavior, but also be able to relate such behavior accordingly. However, it would seem that certain moral standings were still undefined in the typical set of courses. For example, when Jeffery Skilling attended Harvard Business School, ethics was not a normal part of the core curriculum. It is believed that many students had “view[ed] ethics as being about not getting caught rather than how to do the right thing in the first place” (Fusaro 148), understandably posing a serious problem. Evidence for this notion comes from the media’s interpretation of ethical scandals, such as Enron, showing that “business schools ha[d] not sufficiently revised their curricula to cover ethic teaching business ethics” (Cox 1). Nevertheless, nowadays moral behavior, as well as simple ethics, are being pushed in business schools, as supported by many studies, including that performed by “Penn and Collier (1985)” (Cox 4) and “Early and Kelley (2004)” (Cox 5). There have also been many educational films produced as a result of unethical behavior in the business world, including Enron: The Smartest Guys in the Room (Cox), which is commonly used to evaluate how students perceive correct and incorrect ethics, respectively. According to the mentioned studies, students who were taught true ethical behavior responded positively, thus making a revision of ethical curriculum a necessity for proper business education. One could conclude that without Enron’s momentous failure, those students, as well as major game-players, in today’s business world may not have learned this valuable lesson, thus negatively impacting the industry even further.

Also as a result of Enron’s epic collapse, ethical behavior in the business realm was redefined as more than what is acceptable and what is unacceptable, but also what is right and what is wrong.

In 1985 Enron was formed. It was originally a merger between Houston Natural Gas Co. And Omaha-based Inter-North Inc. Kenneth Lay was the CEO of Houston Natural Gas and thus became Enron’s CEO and chairman. Enron became the the premier energy trader and supplier. In 1999 Enron launched its own broad brand services unit and Enron Online. This website rapidly became the largest business site in the world. 90 percent of its income came from trades made in Enron online.

Enron Grew rapidly. In 2000 the company’s annual income reached 100 Billion US and became the seventh largest company on the Fortune 500 and the sixth-largest energy company in the world.

Enron was a U.S energy-trading and utilities company that created the biggest accounting fraud in history. Enron’s employee’s used accounting practices that inflated the company’s revenues.

Enron was not socially responsible when it lied about its income and failed to reveal that its equity value was lower than its balance sheets said. Without a doubt, Enron betrayed its shareholders (its employees most of all) because it went against its own stated commitment to integrity; it eschewed communication for greed; and its creative accounting showed its real contempt for local and international business laws '' even though Enron claimed to respect the law

In retrospect, it is not clear that Enron had a compliance officer in place in 2000 when it formulated its code of ethics. However, it would appear that senior officials in the company would have the same responsibilities as any compliance officer: to ensure that the company upheld all relevant laws and regulations; to be leaders in the formation of ethical business practices; and disclose any information required by law or by company policy. The leaders at Enron violated every one of their obligations and betrayed stakeholders.

Enron was an example of both major success and major failure. It is not to be implied that the once mega-corporation did not indeed succeed at becoming a truly great company. However, the executives had allowed such success to deter them from performing ethically, thus dooming Enron to the fate that it had suffered. Perhaps, if by means of truly learning from history and applying such experiences, the business world will be able to strive to not witness another unethical calamity, such as Enron.