...Enron – “The Smartest Guys in the Room” Who were the smartest guys in the room? Kenneth Lay, the founder of ENRON. Louis Borget, the CEO who diverted company money to offshore accounts. Jeffrey Skilling, the CEO who implemented the mark-to market accounting. J. Clifford Baxter and Lou Pai, the executives who Skilling hired. Andrew Fastow, the CFO who created companies solely to do business with Enron. The auditors, who turned the head when the money came rolling in. Are these the smartest guy in the room? In the beginning ENRON was a natural gas supplier in Houston Texas moved gas through pipelines to locales throughout the United States. In 1984 Kenneth Lay joined the company. In the late 1980s and early 1990s it started trading. It became one of the largest energy companies in the world. But it was scandalous from the beginning. Within a few years after the company was found the first scandals began. This scandal involved two traders betting on the oil markets which resulted in consistent profits. It was also discovered that the CEO, Louis Borget, had been diverting company money to offshore accounts. Lay encouraged them to continue making money for the company after the auditors discovered their schemes. Only when it was discovered that the traders gambled away ENRON’s reserves did the traders get fired. Lay denied knowing anything about the issues. After Borget leaves the company Lay hires Jeffrey Skilling who implements mark-to market accounting...
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...Enron’s Impact The movie Enron: The Smartest Guys in the Room is an informative documentary exposing an unprecedented level of corruption in the business industry. This movie is based on a book written by Bethany McLean and Peter Elkind, who are also the primary interviewees in the film. This movie captures the tragedy in an incredibly detailed and emotion-jerking way, from the beginning of Enron to the end. Enron is well known to anyone familiar with economics, accounting, or business. For many, the name Enron evokes harsh feelings and leaves a sour taste in the mouth. For those who are not familiar with Enron, a few key terms might be helpful in understanding the type of business Enron was: Deceptive, Dishonest, Insolent, Corrupt, Blatant Disregard for Humanity, and Business Failure. Enron strategically and criminally manipulated market-to-market accounting, where projected earnings were allowed in the profits reported; however, market-to-market accounting was not necessarily the problem. The problem lay in the carefully crafted deceptive projections by top executives, which initially no one cared to question. This allowed Enron’s stock price to maintain elevated, even though the money was never there. Enron Oregon Corp. and Enron Corp., a Delaware corporation merged on July 11, 1997, surviving entity, Enron Corp. Recorded puppeteers at the time: Kenneth L. Lay, Chairman of the Board/Chief Executive Officer and Director/Principal Executive Officer; Richard A....
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...financial problems (Enron Ethics, 2010). In 1988 the deregulation of the electrical power markets came into action and flipped the company from up to down, after deregulation company business updated from delivering energy to becoming an energy broker and soon after this Enron once a company struggling to survive transformed to booming one. Deregulation opened the gates for Enron to step into the market and compete with the leading competitors in the market bringing buyers and sellers in to market together (Enron Ethics, 2010). . Enron earned a lot of money from the stock exchange by trading their own shares and earning profit from the difference in buying and selling prices. Deregulation gave permission to Enron to be creative, for the first time in history a firm that was required to operate within in the guidelines could be creative and test the limits the way they want. As time went by Enron’s products and services evolved, so did the culture of the company. In this newly deregulated and creative platform, Enron embraced a culture that welcomed cleverness, it opened the industry up to experimentation and the culture embraced by Enron was one that expected their employees to explore this new playing field and make most out of it whether it be in ethical limits or not (The Smartest Guys in the Room, 2005).. Jeff Skilling the CEO and former president of Enron actively enforced a culture that would push...
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...exclusive reporting. And thirty years later, if you're going to read only one book on Watergate, that's still the one. Today, Enron is the biggest business story of our time, and Fortune senior writers Bethany McLean and Peter Elkind are the new Woodward and Bernstein. Remarkably, it was just two years ago that Enron was thought to epitomize a great New Economy company, with its skyrocketing profits and share price. But that was before Fortune published an article by McLean that asked a seemingly innocent question: How exactly does Enron make money? From that point on, Enron's house of cards began to crumble. Now, McLean and Elkind have investigated much deeper, to offer the definitive book about the Enron scandal and the fascinating people behind it. Meticulously researched and character driven, Smartest Guys in the Room takes the reader deep into Enron's past—and behind the closed doors of private meetings. Drawing on a wide range of unique sources, the book follows Enron's rise from obscurity to the top of the business world to its disastrous demise. It reveals as never before major characters such as Ken Lay, Jeff Skilling, and Andy Fastow, as well as lesser known players like Cliff Baxter and Rebecca Mark. Smartest Guys in the Room is a story of greed, arrogance, and deceit—a microcosm of all that is wrong with American business today. Above all, it's a fascinating human drama that will prove to be the authoritative account of the Enron...
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...financial management Enron’s Downfall A strong ethical conduct is a key requirement in all facets of society today. It defines who people are and usually pays off in the long run. It is especially important in a business setting and must be adopted by companies hoping to sustain consistent and continuous growth for an indefinite time period. In this paper I am going to dive into one of the most well-known and infamous examples fraud in the modern era, I will try and unravel the details of who the beneficiaries were, what they had to gain for their actions, the consequences of their actions and what has been done to prevent such an occurrence in the future and how it has revolutionized the financial reporting standards. There is no greater example of fraud than that of the Enron scenario which occurred in October of 2001. Enron was once one of the energy giants in the world and was deemed ‘too big to fail’. Enron was once very successful and provided thousands of jobs, however, due to a few key executives who driven my their own greed, the company collapsed, causing many people to lose a lot of their money and for many of them their life savings. There came a point in time when Enron began struggling to generate profit and cash flow from the regular business transactions. The company launched many projects which became write-offs and Enron found themselves a massive debt pit. Due to the greed of a few key executives namely Jeff Skilling, Ken Lay, Andy Fastow and the Public...
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...The Smartest Guys in the Room The movie called the smartest guys in the room, narrates the process that how does Enron Corporation, one of the world’s major electricity, one of the world's major electricity, natural gas, and communications companies, with claimed revenues of nearly $111 billion during 2000, went bankrupt eventually. In this film, the interviewers narrated the process of bankruptcy. This is a famous scandal in accounting area and there are lots of illegal behaviors related. We can learn a lot from this scandal in order to behave legally and avoid losing money. Facts: Two years after the corporation founded by Kenneth Lay, there were two traders began betting on the oil markets and transferred the money they earned to the offshore accounts. Instead of fire them, Lay encouraged them to use this unethical way to make money for the corporation. Finally the two traders were fired since they gambled away Enron’s fortune. Then Lay hired Jeffrey Skilling as the new CEO. They began to use mark-to-market accounting, which allowed them to report the potential profits instead of the actual profits. In addition, the new CEO’s aggressive management idea which fires the bottom fifteen percent employees gave the employees incentives to make the profits better than the actual profits. Skilling hired more people to help him make money for Enron Corporation. Under the bull market, executives pushed up the stock prices and cashed in their multi-million dollar options...
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...Jessica Snyder 2-13-14 Enron: The Smartest Guys in the Room CEO Jeff Skilling took advantage of accounting loopholes and questionable practices to increase Enron’s profits. There were unethical decisions made and unethical accounting practices at almost every level of the organization. Even though they had the legal OK from the SEC to use mark-to-market accounting, doesn’t mean it was an advisable or ethical thing to do. Mark-to-market accounting let Enron post profit from future deals on their current books. For example, Enron posted a $53 million dollar deal with Blockbuster Video as soon as they announced it. Unfortunately, the deal never went through and the profits were never made. So while the deal was technically legal, it was far from ethical. The “If it’s legal, it must be ethical” consensus trickled down to lower-level employees and soon the whole company became corrupted and unethical. One energy trader was recorded calling a power plant and asking them to shut down power for a couple of hours. As a result, California had rolling blackouts and energy process skyrocketed. One top level employee was overseeing multiple subsidiaries and Enron ignored the conflict of interest. That top level employee shifted Enron’s debt to the subsidiaries to ensure profitability for the parent company. According to the documentary, the formula for a winning company in the 90s was to beat your projected quarterly earnings. Enron made sure to beat them, any way possible...
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...Class: BUSB 300 THE ETHICAL AND LEGAL ENVIROMENTS OF BUSINESS Instructor: Mr. Bruce Rawding Enron: The Fall In 2001, America’s largest corporate bankruptcy hit Wall Street. A company that provided for many stock market traders, collapsed in twenty four days and there was no way to retrieve lost fortune. Not only traders but the company’s own loyal/faithful employees had a big share in the losses as well. A massacre that was quiet well planned and then executed here, in our great corporate America. Many say it was the result of greedy money minded immoral people, others do not understand complicated transactions and then there are those who blame the government and law makers. At the end of it all, no matter what caused it, people’s lives was destroyed, retirement plans were washed away and most of all the system was toyed with. There were many ethical codes set by our corporate minds, which were either neglected or taken advantage of. This paper is going to analyze the movie Enron: the smartest guys in the room by Magnolia Pictures and also try to better understand the ethical issues that lead to the collapse of the largest natural gas merchant in North America. A firm ethical conduct can be analyzed by first analyzing its key players and how their personal ethic conduct played a major role in sheltering this fraudulent company (CEO, president, board of directors). Kenneth Lay founded Enron in 1985 (Enron: the smartest guys in the room) by merging the Houston Natural Gas company...
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...Plot Alex Gibney, who wrote and produced Eugene Jarecki's The Trials of Henry Kissinger, examines the rise and fall of an infamous corporate juggernaut in Enron: The Smartest Guys in the Room, which he wrote and directed. The film, based on the book by Fortune Magazine reporters Bethany McLean and Peter Elkind, opens with a reenactment of the suicide of Enron executive Cliff Baxter, then travels back in time, describing Enron chairman Kenneth Lay's humble beginnings as the son of a preacher, his ascent in the corporate world as an "apostle of deregulation," his fortuitous friendship with the Bush family, and the development of his business strategies in natural gas futures. The film points out that the culture of financial malfeasance at Enron was evident as far back as 1987, when Lay apparently encouraged the outrageous risk taking and profit skimming of two oil traders in Enron's Valhalla office because they were bringing a lot of money into the company. But it wasn't until eventual CEO Jeff Skilling arrived at Enron that the company's "aggressive accounting" philosophy truly took hold. The Smartest Guys in the Room explores the lengths to which the company went in order to appear incredibly profitable. Their win-at-all-costs strategy included suborning financial analysts with huge contracts for their firms, hiding debts by essentially having the company loan money to itself, and using California's deregulation of the electricity market to manipulate the state's energy supply...
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...Emily Escobedo Professor Kimberly Gleason BA 3300 3 April 2016 EXTRA CREDIT: Enron: The Smartest Guys in the Room https://freedocumentaries.org/documentary/enron-the-smartest-guys-in-the-room#watch-film 1. Explain the concept and rationale behind mark to market accounting and its significance to Enron. (19:35) Jefferey Skilling was hired by Ken Lay. Skilling had agree to work with Enron if he was able to use the mark-to-market accounting which was approved by SEC. This accounting allowed them to book future potential profits on the day the deal was signed, no matter how little cash came in. 2. Describe the Enron culture. (23:28) Enron was a tough and aggressive culture. The traders considered this work ethic an economic religion. They turned Lay and Skilling’s beliefs and turned it into an ideology. They were very competitive as well. 3. What is Andy Fastow's significance to Enron? (48:36) Andy Fastow ran partnerships that were doing business with Enron. (50:50) He was Enron’s Chief Financial Officer. His job was to cover up the fact that Enron was becoming a fantasy financial land. He was the master of structure finance. 4. What is Sherron Watkins significance to Enron? (1:28:15) She was the Vice President of Enron. She notified Ken Lay about the accounting irregularities. 5. Why did Wall Street wait until the collapse of Enron to investigate the company? Was there a diffusion of responsibility whereby the executives at Enron told themselves that...
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...The Enron scandal Tobias Pavel 910422 Mylene Encontro 850224 Chalmers University of Technology Finacial Risk, MVE220 Examiner: Holger Rootzén 2012-12-02 Göteborg This report has been written and analyzed by both group members jointly. Abstract From the 1990's until the fall of 2001, Enron was famous throughout the business world and was known as an innovator, technology powerhouse, and a corporation with no fear. The sudden fall of Enron in the end of 2001 shattered not just the business world but also the lives of their employees and the people who believed that their soar to greatness was genuine. Their collapse was followed by a series of revelations on how they manipulated their success. Introduction Enron shocked the world from being “America’s most innovative company” to America's biggest corporate bankruptcy at its time. At its peak, Enron was America's seventh largest corporation. Enron gave the illusion that it was a steady company with good revenue but that was not the case, a large part of Enron’s profits were made of paper. This was made possible by masterfully designed accounting and morally questionable acts by traders and executives. Deep debt and surfacing information about hiding losses gave the company big problems and in the late 2001 Enron declared bankruptcy under Chapter 11 of the United States Bankruptcy Code. Many factors affected Enron's surge to the top and its sudden fall. In this report we will discuss and present what we think...
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...Ten years after the energy and commodities firm Enron collapsed under the weight of a massive fraud, much has changed about how corporate America does business and much, unfortunately, has remained the same, with new frauds and excessive risk-taking exposed all too frequently. "We did learn some lessons and people were more careful, but greed creeps back in again," said Lawrence Weiss, professor of international accounting at Tufts University's Fletcher School of Law and Diplomacy. Before the bankruptcy of WorldCom in 2002, Enron's bankruptcy was the largest in U.S. history. Names like AIG and WorldCom may have replaced Enron in the vernacular when referring to corporate meltdowns and greed. Enron executives Kenneth Lay, Jeff Skilling and Andrew Fastow -- all convicted of white collar crimes -- emblemized the bad side of the one percent before the term existed. Once the darling of Wall Street, Enron was the country's seventh-largest company with a soaring stock price that grew more than 100 percent in 2000. The company collapsed in a matter of months as the media and the public became aware of its faulty accounting and business practices. Conflicts of interest continue to occur Sen. Carl Levin, D-Mich., chairman of the permanent subcommittee on investigations which reported on the role of Enron's board and investment banks' response to lessons learned from Enron, said the Enron scandal did not put an end to corporate malfeasance.. "One lesson we haven't learned from Enron is that...
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...The Greed and Unethical Behavior at Enron Professor Darren Coleman March 13, 2012 The Smartest Guys in The Room (2005) Enron was one of the largest trading firms in the U.S. It was founded in 1985 by Ken Lay when he began his crusade to help liberate businessmen from government regulation. It remained one of the largest firms up until 2001, when all of their illegal activity was exposed and all of the finger pointing began, and was even voted to be the most innovative companies in 2000 by fortune 5 hundred magazine (First 20 min.). The scandal had broad reach, and included many politicians including WWW.Time.COM (2002) George Bush Sr. and Jr. as well as then Vice President Dick Cheney and Attorney General John Ashcroft. It also included Enron’s auditor Joseph F. Berardino who was the CEO of Arthur Andersen, and their banker Marc Shapiro Vice President of JPMorgan Chase. All of these people played a role in the scandal, although they didn’t even work for the company, but the key players were the Enron officials. Including but not limited to the following Enron employees, Kenneth Lay was the CEO, and Jeff Skilling was the Chief Executive while Richard Causey was the CAO. Andrew Fastow was the CFO and Wendy Gramm and John Mendelsohn were both members of the Board of Directors (Behind the Enron Scandal). The bad decisions were made from the very beginning. The Smartest Guys in The Room (2005) The Bush family had a very strong relationship with Ken Lay, and George Bush...
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...The Enron Fraud Enron Corporation was a conventional energy company founded in 1985, but soon expanded its operations as an energy trader of derivatives contracts, taking advantage of the deregulation of the energy markets. It also built and operated a variety of assets across the globe, including pipelines, electricity plants, pulp and paper plants, water plants, and broadband services; and provided financial and risk management services to customers worldwide. Enron soon became a world-renowned company and it was labeled as the most innovative company in the U.S. for six consecutive years between 1996 and 2001 by Fortune magazine. It was ranked the sixth largest energy company in the world in 2000, with close to 22,000 employees and nearly $101 billion in revenues. But in 2001 the company’s reputation began to fall following rumors of bribery to obtain contracts in different parts of the world. Likewise, fraudulent accounting techniques, which were supported by its external auditing firm Arthur Andersen, allowed the company to create the largest corporate scam know in U.S. history until then (McLean, 2008). Enron’s fraud consisted of, what its CEO called, creative accounting: off-balance-sheet items, complex financing structures, and deals so bewildering that made financial statements misleading and difficult for the stakeholders to understand, deceiving the main objective of financial reporting which is “to provide financial information about the reporting entity...
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...The fall of Enron: Corporate Culture, Governance and Ethics Written By: Bilge-Kagan Ozturk 2007 Abstract This paper examines the critical importance of an ethically based corporate/organisational culture to ensuring company-wide ethical conduct. Testament to this topic I use the case of Enron and its ethical demise to successfully support my argument and highlight the need of top level management to be the main proponents of this culture to allow lower level employees to adopt a behaviour of moral reasoning. The body of the essay will highlight the importance of shaping an ethically based organisational culture, through a number of components, namely a company’s executive management team and its corporate governance system. I also briefly evaluate agency and stakeholder theories and how they relate to an organisational culture from an ethical perspective, and point out Enron’s culture was predominantly one of agency reasoning. Finally I provide a brief and direct conclusion to assert my argument that ethics needs to exist deep within an organisation’s culture and needs to be the key leading value of an organisation. A breakdown of ethics can eventually lead to the demise of a once very reputable and successful company. A great textbook example is of course, the fall of Enron – one of the biggest corporate bankruptcies in US history. Like most companies, Enron had a code of ethics in place and employees who were educated in the field of ethics, agency...
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