Enron: the Smartest Guys in the Room

Topics: Enron, Jeffrey Skilling, Kenneth Lay Pages: 5 (1830 words) Published: June 21, 2008
The purpose of this paper is consider three possible rationales for why Enron collapsed—that key individuals were flawed, that the organization was flawed, and that some factors larger than the organization (e.g., a trend toward deregulation) led to Enron’s collapse. In viewing “Enron: The Smartest Guys in the Room” it was clear that all three of these flaws contributed to the demise of Enron, but it was the synergy of their combination that truly let Enron to its ultimate path of destruction. As in any organization, the executives ultimately drive company policy, practices and accepted behavior. The three key executives that led Enron down its fatal path were, Ken Lay, Jeff Skilling and Andy Fastow. Like most successful leaders they possessed intelligence, ingenuity and a charisma that inspired those around them. Unfortunately, those same characteristics instilled them an exaggerated sense of pride, arrogance and greed. While it was widely know that Ken Lay was a prime example of the American Dream, he proved to be an ethical nightmare for those around him. Despite what one would imagine as an ethical upbringing as the son of a Baptist minister, Ken Lay showed none of those characteristics as an executive and leader of Enron. One of his first and possibly most telling unethical actions was that of his handling of the traders of the Valhalla, NY trading scandal. The Valhalla trading scandal erupted because of the discovery that rogue traders were diverting funds into their personal accounts. When this was discovered by Enron’s internal audit committee and suggested to Ken Lay that they be fired, the idea was quickly dispatched. Ken Lay stated that “the traders made too much money to let them go”. This simple statement was evidence of what Ken Lay valued most, money. By ignoring suggestions that the rogue traders be fired, he further instilled this type of unethical behavior. It seems evident that Ken Lay used Gellermans rationalization that because the activity helps the company, the company will condone it and protect the people that engage in the activity. This rationalization comes into play on two levels in this instance. Since the traders were the ones making huge profits for the company, they believed that any superiors would condone their actions. Likewise, Ken Lay believed that preventing those traders from being fired would ultimately improve the financial condition of the company and thereby improve its status with shareholders and the board. Due to those rationalizations he believed his actions would be condoned. It was until the traders ceased to make large profits for the company that they were finally fired. While Ken Lay greatly admired those who could generate money by their actions, those who had the idea’s for those actions were held in even greater regard. There was no other executive who personified that role greater than Jeff Skilling. From trading natural gas to pursuing the electricity market, Jeff Skilling was brimming with new and in some regards revolutionary business ideas. These ideas were the source of much of Enron’s potential for success. One of Jeff’s most influential ideas was the concept that Enron should switch to mark to market accounting. In laymen’s terms, mark to market accounting allowed profits to be booked on Enron’s income statement that had not actually been realized yet. They were in essence, future expected profits. While not entirely an unethical practice, it proved to be the major catalyst for some of Enron’s future unethical behavior. Jeff possessed many characteristics that would label him as a charismatic tyrant. The most compelling part of his personality in this regard was his attitude toward his own ideas. Part of his reasoning for moving to mark to market accounting was that people in the future should not be able to book profits for ideas that were not originally theirs. He also believed that his was uniquely intelligent and therefore...
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