Enron: the smartest guys in the room Essay

Enron Corporation was an energy. trade goods. and service company out of Houston. Texas founded by Kenneth Lay in 1985. Lay built natural gas power energy in East Texas which helped Enron’s stock rise. Louis Borget. Andrew Fastow. and Jeffery Skilling were the top direction executives from 1985 until 2001. Each helped to convey about the death of the company in multiple ways. One of the first dirts in Enron involved President Louis Borget and two bargainers were discovered wagering on Enron Stocks. The company books were altered to blow up net incomes so that the company appeared to be more profitable that it really was. Borget was deviating company money into personal offshore histories. Hearers tried to bring out the job. but Borget and the bargainers had a separate set of books that they kept from the hearers. Kenneth Lay. who was cognizant of this unethical pattern. and encouraged Borget to go on “making us millions” . two months subsequently the separate set of books were brought to the research workers and Enron fired the two bargainers and Borget had to function one twelvemonth in gaol.

After his biggest money shaper was put behind bars Lay needed to happen him a new money shaper. So Laic hired Jeffrey Skilling to be the CEO. Jeffrey Skilling would merely accept occupation if Enron adopted a mark-to-market accounting scheme. Mark-to-market accounting allowed the company to book possible net incomes on certain undertakings instantly after contracts were signed. regardless of the existent net incomes that the trade would finally do. This gave Enron the ability to look like they were a profitable company. Skilling set together a public presentation reappraisal commission that graded employees and fired the underside 15 per centum each twelvemonth which made the employees really competitory and created a really tough working environment. Traders were really aggressive and they made it to where if you wanted to be in the market you didn’t have a pick to cover with Enron. Trading became the chief reported net income for Enron.

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Skilling hired two cats that became his top lieutenants Lou Pai and Cliff Baxter. They were known as the “Guy with Spikes” . Baxter was a really smart cat and was Enron’s Chief trade shaper. He was manic-depressive and best friends with Skilling. Pai was the CEO of Enron Energy Services. He was really cryptic cat who employees say was ne’er in the office. Pai merely seemed to care about two things. money and strippers. He would convey strippers into the office and would set everything he spent in the strip nine onto an disbursal studies to be reimbursed by Enron. All of Pai’s clip in the strip nines caught up to him and caused him to acquire a divorce. Once he got a divorce he sold all of his stock and resigned from Enron. He came out of Enron better than anyone cashing in his stock and having about two hundred and 50 million dollars. The division of Enron that Pai ran lost a sum of around one billion dollars which was covered up by Enron.

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Enron had success in the bull market brought on by the dot-com bubble. Enron’s stock monetary values increased to enter monetary values. The games was called “pump and dump” top executives would pump up the stock monetary values and so sell their million dollar options. Everyone at Enron was consumed with the stock monetary value. Stock monetary values were even posted in the lifts for everyone to see. Enron launched a PR run to do itself look profitable even with all facets of the company runing ill. Skilling’s doctrine was to take high hazards because these trades would do more money. One of these high hazard trades was constructing a power works in India. which cipher wanted to make because India could non afford the high monetary values. The company lost a billion dollars on this undertaking but that fact was covered up by Skilling. The company paid out multi-million dollar fillip to executive on non-existent net incomes. Enron bought out Portland General Energy which gave them entree to the deregulated market of California.

All of the employees in PGE had bought their stock so when Enron took over all of the stock PGE stock became Enron. The Portland General Energy workers had ever invested their 401k into stock which converted to Enron. These employees continued to buy stock because of their trust in Enron. Enron’s chief motive for purchasing the company was to run in California since they held the highest demand for energy in the United States. Enron’s bargainers would flim-flam California’s electricity supply and export the energy to another province doing California to hold blackouts. By California holding these black outs they raised the energy rate in the province. Although Enron’s stock monetary values were steadily lifting. the company was losing a batch of money. Skilling turned the company into cyber infinite. They attempted to utilize broadband engineering to present films on demand and “trade weather” like a trade good. Both of the selling schemes failed miserably. By utilizing mark-to-market accounting they booked 53 million dollar in net incomes on a trade that didn’t do a penny. Once they figured out they could non conceal the company’s losingss. the top executives started selling their stock. Enron was named the “most admired” corporation by Fortune magazine for the six old ages in a row. Jim Chanos. an Enron investor. and Bethany McLean. a Fortune newsman. both questioned the company’s fiscal statements and stock value.

McLean tried to speak to Skilling about the abnormalities but Skilling went on the defensive naming McLean unethical. Skilling sent three executives to run into with her and Fortune’s editor including CFO Andy Fastow. Andy Fastow was the chief one maintaining Enron running. He was cooking the books doing it look like Enron was doing a net income even though the company was more than 30 billion dollars in debt. Fastow created two limited partnerships. LJM1 and LJM2. for the intent of purchasing Enron’s ill executing stocks to better its fiscal statements. Fastow had to travel before the board of managers to acquire an freedom to run these two companies every bit good as Enron. This was a definite struggle of involvement. He besides had personal fiscal interest in these company’s either straight or through a spouse. He made 1000000s of dollars victimizing Enron. He pressured the investing Bankss such as Merrill Lynch. Citibank to put by endangering them with loss of Enron’s concern if they did non. He had analysts fired who threatened to describe Enron for incorrect behaviors. A good sound moralss policy was established when Enron was formed.

The jobs occurred when the policy was non followed. By non following the moralss policy put in topographic point. employees and direction were encouraged to take hazards thereby promoting unethical behaviour which finally brought down the company. Enron went insolvents in 2001 due in big portion to widespread fraud in company runing policies. The top executives were the chief 1s practising unethical behaviour in the company. By the top executives acting unethically lower degree employees followed their illustration. Equally long as Enron was doing money no 1 cared how they went about making it. In 2001. these unethical actions over the past decennary and half caught up with Enron’s top executives and employees. Twenty thousand employees lost their occupation. medical insurance and employees besides lost1. 2 billion in retirement financess. Enron’s top executives were paid fillips numbering 55 million and cashed in their stock at about 116 million dollars. Even though some of the executives made money in the trade they had to confront felon charges which placed some in prison and some still have pending instances.

If Enron has survived their prostration in 2001 and I were to be a adviser for Enron. I would do certain that the codification of moralss booklet that all employees read and signed before taking the occupation at Enron were followed. Employees and executives would hold to take portion in moralss developing to be certain that they understand the book wholly. Enron would hold to hold committedness from all of the executive places to follow these regulations and besides enforce them even if the unethical actions were doing the company more money. There would hold to be a zero tolerance regulation in topographic point that everyone understood. All employees moving unsuitably would be reprimanded as established in the codification of moralss brochure.

Work cited
Enron: The Smartest Guys in the Room. Dir. Alex Gibney. By Alex Gibney. Peter Elkind. Bethany McLean. and Peter Coyote. Magnolia Pictures. 2005

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