Enron: the smartest guys in the room Essay

Enron Corporation was an energy, commodities, and service friendship protrude of Houston, Texas founded by Kenneth Lay in 1985. Lay built natural gas power energy in East Texas which helped Enrons stock rise. Louis Borget, Andrew Fastow, and Jeffery Skilling were the top management executives from 1985 until 2001. Each helped to bring round the demise of the company in multiple ways. One of the first scandals in Enron involved President Louis Borget and two tackrs were discovered betting on Enron Stocks. The company books were altered to inflate profits so that the company appeared to be much productive that it actu entirelyy was. Borget was diverting company m onenessy into personal offshore accounts. Auditors tried to uncover the problem, but Borget and the traders had a separate set of books that they kept from the auditors. Kenneth Lay, who was aware of this wrong practice, and encouraged Borget to continue making us millions, two months later the separate set of books wer e brought to the appareligators and Enron fired the two traders and Borget had to serve one year in jail. subsequently his biggest capital maker was put behind bars Lay needed to find him a new money maker. So Lay hired Jeffrey Skilling to be the CEO. Jeffrey Skilling would only accept job if Enron adopted a mark-to-market accounting strategy. Mark-to-market accounting allowed the company to book potential profits on certain projects immediately aft(prenominal) contracts were signed, regardless of the actual profits that the locoweed would eventually make. This gave Enron the ability to look like they were a profitable company. Skilling put together a performance check out committee that graded employees and fired the bottom fifteen percent each year which made the employees very competitive and created a very tough works environment. Traders were very aggressive and they made it to where if you wanted to be in the market you didnt have a choice to deal with Enron. Trading beca me the main inform profit for Enron.Skilling hired two guys that became his top lieutenants Lou Pai and Cliff Baxter. They were known as the Guy with Spikes. Baxter was a very smart guy and was Enrons Chief deal maker. He was manic-depressive and best friends with Skilling. Pai was the CEO of Enron Energy Services. He wasvery mysterious guy who employees say was never in the office. Pai only seemed to care about two things, money and strippers. He would bring strippers into the office and would put everything he spent in the strip clubs onto an expense reports to be reimbursed by Enron. All of Pais time in the strip clubs caught up to him and caused him to get 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 receiving approximately two hundred and fifty million dollars. The division of Enron that Pai ran confused a total of around one billion dollars which was covered up by Enron.Enr on had success in the bull market brought on by the dot-com bubble. Enrons stock prices increased to learn prices. The games was called pump and dump top executives would pump up the stock prices and then sell their million dollar options. Everyone at Enron was consumed with the stock price. Stock prices were even stick on in the elevators for everyone to see. Enron launched a PR campaign to make itself look profitable even with all aspects of the company in operation(p) poorly. Skillings philosophy was to take juicy risks because these deals would make more money. One of these high risk deals was building a power plant in India, which nobody wanted to do because India could not spread the high prices. The company lost a billion dollars on this project but that fact was covered up by Skilling. The company paid out multi-million dollar bonus to executive on non-existent profits. Enron bought out Portland General Energy which gave them access to the deregulated market of Californ ia.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 always invested their 401k into stock which converted to Enron. These employees continued to purchase stock because of their trust in Enron. Enrons main penury for buying the company was to operate in California since they held the highest demand for energy in the United States. Enrons traders would trick Californias electricity put up and export the energy to another state causing California to have blackouts. By California having these black outs they raised the energy rate in the state. Although Enrons stock prices were steadily rising, the company was losing a lot of money. Skilling turned the companyinto cyber space. They attempted to use broadband technology to deliver movies on demand and trade weather like a commodity. Both of the marketing strategies failed miserably. By using mark-to-market accounting they booked 5 3 million dollar in earnings on a deal that didnt make a penny. Once they figured out they could not hide the companys losses, the top executives started selling their stock. Enron was named the intimately admired corporation by Fortune magazine for the six years in a row. Jim Chanos, an Enron investor, and Bethany McLean, a Fortune reporter, both questioned the companys monetary statements and stock value.McLean tried to talk to Skilling about the irregularities but Skilling went on the defensive calling McLean unethical. Skilling sent three executives to meet with her and Fortunes editor including chief financial officer Andy Fastow. Andy Fastow was the main one keeping Enron running. He was cooking the books making it look like Enron was making a profit even though the company was more than 30 billion dollars in debt. Fastow created two limited partnerships, LJM1 and LJM2, for the purpose of buying Enrons poorly performing stocks to improve its financial statements. Fastow had to go before the bestride of directors to get an exemption to run these two companies as well as Enron. This was a definite conflict of interest. He also had personal financial adventure in these companys either directly or through a partner. He made millions of dollars defrauding Enron. He pressured the investment banks such as Merrill Lynch, Citibank to invest by threatening them with loss of Enrons business if they did not. He had analysts fired who threatened to report Enron for wrong doings. A good sound moral philosophy constitution was established when Enron was formed.The problems occurred when the policy was not followed. By not following the ethics policy put in place, employees and management were encouraged to take risks thereby further unethical behavior which ultimately brought down the company. Enron went bankrupt in 2001 due in large part to widespread fraud in company operating policies. The top executives were the main ones practicing unethical behavior in the company. By the top executives behaving unethically lower level employees followed their example. As long as Enron was making money no one cared how they went about doing it. In 2001, these unethical actions over the past decade and half caught up with Enrons top executives and employees. Twenty thousand employees lost their job, medical insurance and employees also lost1.2 billion in retirement funds. Enrons top executives were paid bonuses totaling 55 million and cashed in their stock at approximately 116 million dollars. Even though some of the executives made money in the deal they had to face criminal charges which placed some in prison and some still have pending cases.If Enron has survived their collapse in 2001 and I were to be a consultant for Enron, I would make sure that the code of ethics booklet that all employees read and signed before taking the job at Enron were followed. Employees and executives would have to take part in ethics training to be sure that they under stand the book completely. Enron would have to have commitment from all of the executive positions to follow these rules and also enforce them even if the unethical actions were making the company more money. There would have to be a zero tolerance rule in place that everyone understood. All employees acting inappropriately would be reprimanded as established in the code of ethics booklet.Work citedEnron The Smartest Guys in the Room. Dir. Alex Gibney. By Alex Gibney, Peter Elkind, Bethany McLean, and Peter Coyote. Magnolia Pictures, 2005