Enron: the smartest guys in the room

Topics: Enron, Enron: The Smartest Guys in the Room, Andrew Fastow Pages: 6 (1422 words) Published: April 15, 2014
Enron: The Smartest Guys in the Room
Enron Corporation was an energy, commodities, 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 management executives from 1985 until 2001. Each helped to bring about the demise of the company in multiple ways. One of the first scandals in Enron involved President Louis Borget and two traders were discovered betting on Enron Stocks. The company books were altered to inflate profits so that the company appeared to be more profitable that it actually was. Borget was diverting company money 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 unethical practice, and encouraged Borget to continue “making us millions”, two months later the separate set of books were brought to the investigators and Enron fired the two traders and Borget had to serve one year in jail.

After his biggest money 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 after contracts were signed, regardless of the actual profits that the deal would eventually make. This gave Enron the ability to look like they were a profitable company. Skilling put together a performance review committee that graded employees and fired the bottom fifteen percent each year which made the employees very competitive and created a very tough working environment. Traders were very aggressive and they made it to where if you wanted to be in the market you didn’t have a choice to deal with Enron. Trading became the main reported 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 Enron’s Chief deal maker. He was manic-depressive and best friends with Skilling. Pai was the CEO of Enron Energy Services. He was very 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 Pai’s 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 lost a total of around one billion dollars which was covered up by Enron.

Enron had success in the bull market brought on by the dot-com bubble. Enron’s stock prices increased to record 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 posted in the elevators for everyone to see. Enron launched a PR campaign to make itself look profitable even with all aspects of the company operating poorly. Skilling’s philosophy was to take high 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 afford 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...
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