Enron: The smartest guys in the room (Essay Sample)

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Enron: The Smartest Guys in the Room
In the year 2001, Enron Corporation which was a huge energy trading organization in America became insolvent due to the break out of the major financial and accounting scams and schemes. This scandal is one of the most infamous examples of deliberate corporate fraud and incorrect as well as poor corporate governance. This scandal is widely known as one of the biggest financial scandals and instances of bankruptcy in the history of America. The whole sequence of how Enron as a company which was one of the global giants in the energy sector collapsed and went under is well depicted in the documentary called “Enron: the Smartest Guys in the Room” which is centered on the book that was written by Bethany McClean and Peter Elkind who were reporters and authors at Fortune. This film portrays the manner in which the top executives of the company, particular the Chairman who was also the Founder of Enron Kenneth Lay, the Chief Executive Officer Jeffery Skilling and Chief Financial officer Andrew Fastow, as a result of their unsighted power of greed and damaged organizational philosophy steered to the ill-fated collapse of Enron and gave rise to the criminal prosecutions for numerous executives as well as themselves (Mclean and Elkind 75).
It can be easily argued that the Enron scandal was aided and facilitated due to the corporate structure that had been changed and instituted by the company. It is through this damaged corporate governance structure that the company was able to enjoy a long period of deception and dishonesty. The company instituted an ill-structured organizational culture, extremely competitive, corrupt rewards and evaluation system, flawed organizational system enveloped around the stock market position as its main objective and cult-like kind of leadership. Jeffery Skilling being the leader at Enron instituted and promoted a culture in which all its personnel were trained to feel that they were shrewder and superior than others and that they could undertake anything they sought after devoid of any common sense of culpability and responsibility to the stockholders or investors. They were self-centered, highly focused on makeshift incomes and were supposed to be quiet about it all or even aid in concealing whatever transgressions by the top executives that they detected (Thomas 3).
The compensation and evaluation system at Enron which characteristically was thought to design and maintain its most valued workers turned out to make personnel infatuated with immediate incomes and individual growth in the company at the cost of corporation’s losses. The company made use of an “up or out” evaluation system where each year the bottom ten percent performing employees were sacked inevitably and those who performed greatly were sprinkled with unparalleled financial prizes perceived nowhere else in the market. The recompenses were so overgenerous that it enticed all personnel towards going through with its dysfunctional culture. The corporate structure was also changed to focus on the stock price and position of the company. That is all that mattered to the company. The company’s employees were to undertake anything and everything to ensure that the stock price of the company was always up and rising. The aggressive and cult-like kind of leadership that was enforced by Skilling was also what altered the corporate structure of the company. He ensured that the workers believed his assertions and that all of them were working in accordance to the directives and timelines that he had given so as to ensure that maximum productivity was attained at the peak point in time.
The central executives of Enron were considered to be the main perpetrators of the Enron scandal and were eventually charged for their crimes. To begin with, Andrew Fastow who was the executive in charge of finance was sentence to six years in prison after he was charged with the crimes of money laundering and fraud which he actually pleaded guilty to. Jeffery Skilling was given a 24 year sentence to jail. He was charged with the crime of stage-managing a sequence of transactions and financial schemes which later resulted in loses as they concealed the debts from the stakeholders. Ken Lay on the other hand, passed on in 2006 due to a heart attack but was charged with nineteen counts of fraud, conspiracy and insider trading in the whole Enron Scandal. Another executive that was charged was Michael Kopper who was given a jail term of 37months for money laundering and wire fraud. Another Enron central executive was Michael Koenig who was charged with the crime of aiding in presenting falsified information to investors and stakeholders. In addition, the law firm known as Arthur Anderson which was being paid one million dollars every week was charged with the crime of the obstruction of justice as it destroyed all of the documents that included the audits done for Enron by the firm. Later on in the year 2002, the law firm gave in its licenses as well as its rights to practice (Thomas 2).
Enron in the year 2000 and 2001 caused the California electricity crisis where the state of California experienced a shortage in the supply of electricity which was brought about by manipulations in the market and shutting down of the pipelines illegally and capping the selling prices of electricity. As a result, California suffered several and expansive black outs. The traders of Enron ensured that they maximized and the most out of these arbitrage opportunities which were basically prospects to make abnormal amounts of money in profit. In other words, they were making profits beyond and above the norm. In the name of deregulation, Enron used market manipulation techniques to decrease the supply levels of electricity. One of these techniques included megawatt laundering which was the way used by Enron for concealing the real sources of the exact amounts of electricity that were being retailed on the energy market. Another technique used was overscheduling where Enron influenced the capacity that was available for transference of electricity through the power lines. Enron Company made it appear as if the power lines were jammed and therefore forced the state of California to pay for congestion fees in order to remove congestion on the power lines, an issue that was not there to start with. The consumers felt the pinch because the wholesale prices of electricity went up by almost eight hundred percent. The resulting blackouts really adversely impacted the businesses that were reliant on electricity as well as the consumers who had to live without any power. In order to get power the consumers had to pay almost twenty times the average price that they had been used to paying.
The main business undertaken by Enron Corporation included the supply of natural gas. The company also went in on the electricity business by partnering with P&G Company. The company’s business also included communications by selling bandwidth and also pulp and paper companies. As a result of all of these businesses the company was declared the most innovative firm in the industry for six years in a row.
The significance of the suicide of Baxter at the beginning of the film was to show the tipping point of the immoral things that the company had done and just how over the top things had escalated to. It brought about the main question as to whether there are evil people and good people. It was debated whether good individuals have the capability of undertaking evil things. More and more people considered the Enron personnel to be good individuals who were partaking in evil immoral things. Baxter who considered himself a good person as he had complained a number of times to Ken Lay about the operations of the company could not take the pressure of what the people termed to be when the whole company came crashing down.
The journalist that broke the story underlying in the film is known as Bethany McLean and she brought the story into light through her article dubbed “Is Enron Overpriced?” in Fortune Magazine. McClean was greatly assisted by Sherron Watkins who had realized that the numbers in Enron’s financial statements did not add up and the accounting fraud that was taking place and who had actually made contact with Lay questioning him about the fraud instances.
The Enron corporate crime spree was particularly unethical and illegal for several reasons which encompass the exclusion or cover-up of information and the limitation of organizations. The issue of ethics comes about at the aspect where the executives or the personnel with the leadership positions in the companies in making decisions profitable to themselves or to the company. One principle of ethics is the advocacy for the accountability towards the shareholders of any institution (Goldman and Sigsmond 14). One of the means in which the Enron corporate crime spree is associated to ethics is the aspect the executives or directors deliberate and exceedingly favors earnings and financial matters at an advanced level as equated to ethical materials. For example, to start with, the traders of Enron illegally and unlawfully influenced the prices of energy in the state of California in order to create profits and earnings for Enron. The traders did this by instigating electricity failures for power plants all throughout the state and consequently accumulating the demand levels for electricity at an alarming rate. As a consequence, the prices of energy soared and Enron made high profits. For example, in the film, a trader can be perceived making a call to a power plant and asking them to bring about power outage for a couple of hours. The resulting rolling blackouts all over the state of California brought about price increases and this was to the delight of the traders.
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