Film Assignment Enron: Smartest Guys in the Room by Amy Stavely
10 January 2015
Enron: Smartest Guys in the Room
Enron is unquestionably the most well known ethical scandal of the business world. The only other scandal that even comes close is the Madoff Investment Scandal in 2008. Enron started out as a natural gas company but along the way added electricity along with pulp and paper to its list of commodities for sale. During it’s years of existence, Enron executives Kenneth Lay, Jeffery Skilling and Andrew Fastow falsified earnings reports, skimmed money, artificially inflated stock prices and defrauded the company, it’s employees and subsidies of MILLIONS of dollars. Enron finally collapsed after many of its’ executives were convicted of a litany of federal charges and even managed to take it’s auditing firm, Arthur Andersen, down with them. As a college student studying Political Science in the late 1990s, it was impossible to ignore the buzz surrounding Enron and what it had “accomplished” during its years in existence. The culture of greed and ethical tight rope walking that prevailed within the organization in a way, provided future businesses with a clear “What Not To Do” handbook and lead to the passing of the Sarbanes-Oxley Act of 2002 which provided sweeping accounting reforms by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. All of this, however, could’ve been avoided if the people involved with Enron had actually followed the company’s motto of “Ask Why.” If one looks at the Enron scandal from the “Ask Why” standpoint, one can see that the reasons that Skilling, Lay and Fastow got away with as much as they did is because no one actually asked “Why;” not the traders, the accountants, the board, the banks, the stockholders, the auditors … no one. It wasn’t until 2001 when a reporter for Fortune Magazine named Bethany McLean confronted Skilling that Enron first had to explain itself. Before McLean, no one had the audacity to question the inner workings of the company because on paper, "America's Most Innovative Company" was making billions. Little did we know those billions were fake! Enron made it’s “billions” by using an accounting method known as mark-to-market. Mark-to-Market allowed Enron to book future profits of the stocks it was selling even though the company hadn’t received the cash yet. Skilling believed that you should be able to book profits for ideas when you have the idea, even if it hasn’t been proven to be viable. In doing so, you have no real figures for these future profits thus one can make up a number that you expect it to bring in. This opened the company up for grossly overestimating the actual amount of cash the company had available. The executives at Enron were hyper focused on stock prices and the way people viewed the company. Mark-to-Market accounting made the company look much more profitable than it actually was which artificially inflated the price of the company stocks. Stocks were such a big deal to Enron that when they acquired Portland General Electric, they invested the large portions of the 401K retirement plans of all the PGE employees in Enron stocks. As a result, when Enron went under, the 401Ks plummeted. At the height of Enrons success, their stock was selling around $1000 per share but when they finally fell, it was at an all time low of $5 per share! Enron executives over the years would cash out their stocks when the price was right. Again, no one ever asked “why” the executives would be doing such a thing if they had such faith in the profitability of their company. Enron execs ultimately cashed in $116 million dollars in stocks. So, why did no one ask “Why”? What was it about the corporate culture of Enron that kept its employees from questioning the numbers and policies? Firstly, employees may have...
Please join StudyMode to read the full document