Enron: What Happened?

Enron: What Happened?
“We like risks, because you make money by taking risks”
- Jeffrey Skilling (Enron: The Smartest Guys in the Room, 2005).
Enron was a company that nobody thought would fail, but they were wrong. Everyone has the same question, what happened? It’s been years since the company declared bankruptcy and even know it’s still hard to pinpoint exactly what happened. Let’s reviewa few key turning points that from a business point of view could have made a difference.
Kenneth Lay funded Enron in 1985 as a natural gas company (Independent Television Service, 2007). It rose to great success and in only 16 years and was valued at $70 billion dollars. Sadly, it only took 24 days for the same company to go bankrupt. There are many factors that caused this great fall fromgrace such as the bloodthirsty brokers and the vast centralization of such a complex structure.
Before all this, the company based its image as one of trust but was not able to live up to it. The first indicator that this company should not be trusted with accounting or finances, was the Enron Oil- Valhalla Scandal. Enron auditors discovered that oil traders, Louis Borget and Thomas Mastroeni,in their Valhalla, New York office had been diverting company funds to their personal accounts. When Lay was informed of this by the auditors, he ignored them due to the fact that the brokers where generating high profits for the company (United Press International, 2002). Greed was a great motivator behind this first scandal.
It is at this point that Lay should have “cleaned house” andremoved the two corrupt brokers from his company and made sure that his financial records where in order. This lack of ethics in the person that had the role of leader created a trickle effect that went throughout the company to all of its employees; it basically led them to believe that this type of behavior was acceptable. If correctly managed at the moment this would have opened newopportunities for other employees as well as the company – their public image would not have been tarnished either.
Later on in 1992, Lay created a new form to deliver energy and make profit from his gas company by transforming energy itself into financial instruments, which could be traded like stocks and bonds. He then followed with a new form of accounting called market to market, which would makemarket projections based of potential future profits. This accounting was approved by the SEC (Security Exchange Commission) but was open to manipulation (Independent Television Service, 2007). It was based on this type of accounting that the company appeared to be flourishing, and for a time it was.
Enter Jeffrey Skilling. He is a man that believes in survival of the fittest, which made for aruthless entrepreneur. Skilling and Lay lobbied for a free market in the energy industry that would make the market prices rise and fall with the economic changes of the time. This caused great economic suffering for the state of California that had high usage of kilowatts. They also closed a few plants that caused the state to have rolling black outs and consequently raise the price of service.Now that the company thought they were on top, Skilling gave himself a makeover. He had laser eye surgery and started exercising as well as going on “wild adventures” in which he and a few colleagues would search for “masculinity”. Through this we can see that Skillet was going through some major life changes and a change of personal perception which also affected his employees. They started toact more like him as well and started changing their appearance (Enron: The Smartest Guys in the Room, 2005). This change in appearance and lifestyle also gave Skillet an ease with his employees. He used these adventure trips as a reward to those who made sure that the company kept making money and made it look legal as well.
Towards the end, the company started raising their stock prices...