Enron Scandal

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CILM Book Review

0834172

IB3A20 Critical Issues in Law and Management

Book Review

Enron, Titanic and The Perfect Storm - Nancy B. Rapoport

Student No: 0834172 Word Count: 1500
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CILM Book Review

0834172

Two years after Enron filed for bankruptcy in 2001, Nancy b. Rapoport wrote this essay expressing her unique perspective on the real cause of Enron’s demise. This essay catches the reader’s attention instantly, because unlike abundant other articles written on the biggest corporate scandal in American history, the author here rejects Jeff Skilling’s (former president of Enron) argument1 of what brought about Enron’s downfall. She instead uses another metaphor, arguing that Enron’s downfall was more like Titanic’s- hubris and over reliance on checks and balances that led to its demise rather than a ‘Perfect Storm’ of events. The purpose behind her preference of the metaphor ‘Titanic’ over ‘Perfect storm’ clarifies and warns readers about not being misled into believing that Enron’s downfall was based on factors ‘outside of the company’s control’ rather was caused by a ‘synergetic combination of human errors’. In justifying the Titanic as a more apt analogy to the downfall of Enron, the author offers strong arguments such as how the Enron is in some sense a larger-than-life disaster much like the Titanic. While Titanic’s failure was tied to the unrealistic faith in technology to protect passengers, Enron’s failure was tied to the unrealistic faith that formal and informal checks and balances could always keep the market honest. However, her strongest argument of ‘hubris’ found both in the top executives of Enron as well as the officers of Titanic is not convincing. As much as the greed for money is evident in Enron employees and their arrogant behavior, her equivalent assertion that the Titanic can trace the loss of life directly to human arrogance (pg 209) lacks adequate evidence. Whether her proof of 1

*Former Enron CEO Jeffrey+ Skilling offered a hypothesis for what brought Enron down, calling it a “Perfect Storm” of events.

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the ‘numerous ignored ice warnings’, or the famous response of Operator Phillip’s to the ice warning “Shut up, Shut up . . . I am working Cape Race” does not convince the reader as amounting to arrogance. In fact, additional evidence such as how in both tragedies the rich (top management in Enron’s case; upper class in Titanic’s) survived, while the working class (Enron’s employees and small investors; Titanic employees and steerage passengers) bore the brunt of the loss, could have offered a stronger backing to her claim. Moreover, while the author carefully selects key pieces of evidence, she overlooks an important contrary argument. To extend the Titanic analogy further, one observes that unlike the captain of the Titanic who also sank with the ship, Lay and other top executives did exactly the opposite as they pulled the life jackets away from their employees because of a misguided, selfish desire to keep the stock value high. They paid themselves an average of $ 55million as bonuses as the company staggered through bankruptcy and ordinary employees lost their jobs and most of their savings2.

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Useem, M., Enron’s Ken Lay: Captain of a Modern Day Titanic? Available at http://knowledge.wharton.upenn.edu/article.cfm?articleid=1015

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Nonetheless, the author goes on to nominate ‘Failure of Human Character as the single root cause of the Enron mess’ (pg 209) based on her accurate perception of the hubris found in Enron employees. However, it is important to consider that if this was indeed the case, does it mean that another Enron would not occur given the same economic climate, same financial deals with Honest people of Highest Integrity dealing with same situation? I believe that most would answer No to this question! Therefore, in reaching this very strong conclusion, the author’s critical...
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