Four years after the debacle, the term 'Enron' has earned its place in the everyday vocabulary of business ethics. Hardly anyone understands the business intricacies of what really happened with the sophisticated energy conglomerate. Even fewer are those able to envision, beyond the business case, the ethical questions and dilemmas facing actors at any one stage of the drama. Using the collapse of Enron as a case study, this book not only shows how and where ethics came into play, but also draws lessons and discusses possible remedies that may prevent the whole financial system from falling apart as a result of either excessive greed or over-regulation.
1. The Enron success and failure -- 2. Enron as of 31 December 2000 -- 3. First six months of 2001: before the storm -- 4. Sherron Watkins' letter to Kenneth L. Lay -- 5. The clouds burst -- 6. The 100-year flood -- 7. JEDI and Chewco: not the movie -- 8. LJM1 and rhythms -- 9. LJM2 and Raptors I and III -- 10. LJM2 and Raptors II and IV -- 11. Other transactions -- 12. The collapse -- 13. The indictment of lay and skilling -- 14. The trial -- 15. A slice of the Skilling-Lay trial -- 16. The Skilling-Lay trial: fair or foul? -- 17. Mark to market accounting: feeding the growth requirement -- 18. Concluding observations
A Brookings Institution Press and American Enterprise Institute publication A few years ago, Americans held out their systems of corporate governance and financial disclosure as models to be emulated by the rest of the world. But in late 2001 U.S. policymakers and corporate leaders found themselves facing the largest corporate accounting scandals in American history. The spectacular collapses of Enron and Worldcom—as well as the discovery of accounting irregularities at other large U.S. companies—seemed to call into question the efficacy of the entire system of corporate governance in the United States. In response, Congress quickly enacted a comprehensive package of reform measures in what has come to be known as the Sarbanes-Oxley Act. The New York Stock Exchange and the NASDAQ followed by making fundamental changes to their listing requirements. The private sector acted as well. Accounting firms—watching in horror as one of their largest, Arthur Andersen, collapsed after a criminal conviction for document shredding—tightened their auditing procedures. Stock analysts and ratings agencies, hit hard by a series of disclosures about their failings, changed their practices as well. Will these reforms be enough? Are some counterproductive? Are other shortcomings in the disclosure system still in need of correction? These are among the questions that George Benston, Michael Bromwich, Robert E. Litan, and Alfred Wagenhofer address in Following the Money. While the authors agree that the U.S. system of corporate disclosure and governance is in need of change, they are concerned that policymakers may be overreacting in some areas and taking actions in others that may prove to be ineffective or even counterproductive. Using the Enron case as a point of departure, the authors argue that the major problem lies not in the accounting and auditing standards themselves, but in the system of enforcing those standards.
“They’re still trying to hide the weenie,” thought Sherron Watkins as she read a newspaper clipping about Enron two weeks before Christmas, 2001. . . It quoted [CFO] Jeff McMahon addressing the company’s creditors and cautioning them against a rash judgment. “Don’t assume that there is a smoking gun.” Sherron knew Enron well enough to know that the company was in extreme spin mode… Power Failure is the electrifying behind-the-scenes story of the collapse of Enron, the high-flying gas and energy company touted as the poster child of the New Economy that, in its hubris, had aspired to be “The World’s Leading Company,” and had briefly been the seventh largest corporation in America. Written by prizewinning journalist Mimi Swartz, and substantially based on the never-before-published revelations of former Enron vice-president Sherron Watkins, as well as hundreds of other interviews, Power Failure shows the human face beyond the greed, arrogance, and raw ambition that fueled the company’s meteoric rise in the late 1990s. At the dawn of the new century, Ken Lay’s and Jeff Skilling's faces graced the covers of business magazines, and Enron’s money oiled the political machinery behind George W. Bush’s election campaign. But as Wall Street analysts sang Enron’s praises, and its stock spiraled dizzyingly into the stratosphere, the company’s leaders were madly scrambling to manufacture illusory profits, hide its ballooning debt, and bully Wall Street into buying its fictional accounting and off-balance-sheet investment vehicles. The story of Enron’s fall is a morality tale writ large, performed on a stage with an unforgettable array of props and side plots, from parking lots overflowing with Boxsters and BMWs to hot-house office affairs and executive tantrums. Among the cast of characters Mimi Swartz and Sherron Watkins observe with shrewd Texas eyes and an insider’s perspective are: CEO Ken Lay, Enron’s “outside face,” who was more interested in playing diplomat and paving the road to a political career than in managing Enron’s high-testosterone, anything-goes culture; Jeff Skilling, the mastermind behind Enron’s mercenary trading culture, who transformed himself from a nerdy executive into the personification of millennial cool; Rebecca Mark, the savvy and seductive head of Enron’s international division, who was Skilling’s sole rival to take over the company; and Andy Fastow, whose childish pranks early in his career gave way to something far more destructive. Desperate to be a player in Enron’s deal-making, trader-oriented culture, Fastow transformed Enron’s finance department into a “profit center,” creating a honeycomb of financial entities to bolster Enron’s “profits,” while diverting tens of millions of dollars into his own pockets An unprecedented chronicle of Enron’s shocking collapse, Power Failure should take its place alongside the classics of previous decades – Barbarians at the Gate and Liar’s Poker – as one of the cautionary tales of our times.
"I'd say you were a carnival barker, except that wouldn't be fair tocarnival barkers. A carnie will at least tell you up front that he's running a shell game. You, Mr. Lay, were running what purported to be the seventh largest corporation in America."-Senator Peter Fitzgerald (R-IL) to Enron CEO Kenneth Lay, Senate Commerce Science & Transportation's Subcommittee, Hearing on Enron, 2/12/02 The speed of Enron's rise and fall is truly astonishing and perhaps the single most important story of corporate failure in the twenty-first century. In Enron investigative journalist Loren Fox promises readers nothing short of the most compelling and insightful investigation into Enron's meteoric ascent-regarded by Wall Street and the media as the epitome of innovation-and its spectacular fall from grace. In a lively and authoritative manner, Fox discusses how the biggest corporate bankruptcy in American business history happened, why for so long no one (except for an enlightened few) saw it coming, and what its impact will be on financial markets, the U.S. economy, U.S. energy policy, and the public for years to come. With access to many company insiders, Fox's intriguing account of this corporate debacle also provides an overview of the corporate culture and business model that led to Enron's high-flying success and disastrous failure. The story of Enron is one that will reverberate in global financial and energy markets as well as in criminal and civil courts for years to come. Rife with all the elements of a classic thriller-scandal, dishonest accounting, personal greed, questionable campaign contributions, suicide-Enron captures the essence of a company that went too far too fast.
A definitive new reference on the major failures of American corporate governance at the start of the 21st century. Tracing the market boom and bust that preceded Enron's collapse, as well as the aftermath of that failure, the book chronicles the meltdown in the telecom sector that gave rise to accounting scandals globally. Featuring expert analysis of the Sarbanes-Oxley legislation that was adopted in response to these scandals, the author also investigates the remarkable market recovery that followed the scandals. An exhaustive guide to the collapse of the Enron Corporation and other financial scandals that erupted in the wake of the market downturn of 2000, this book is an essential resource for students, teachers and professionals in corporate governance, finance, and law.
This law school text explores the Enron debacle from a variety of different aspects. Essays analyze the business-government interactions and decisions that laid the foundations for Enron's growth and subsequent demise. Other essays describe and detail the complex web of partnerships and accounting tricks used by Enron to hide bad news and project good news. While other essays focus on the ethical and legal dimensions of the Enron crisis, and their lessons for business and law students, as well as for society.
Offering a critique of both free-market piracy and the dilemmas of resource nationalism, From Enron to Evo is groundbreaking book for anyone concerned with Indigenous politics, social movements, and environmental justice in an era of expanding resource development.
After the shocking collapse of Enron in fall, 2001 came an equally shocking series of disclosures about how America's seventh-largest company had destroyed itself. There were unethical deals, offshore accounts, and accounting irregularities. There were Wall Street analysts who seemed to have been asleep on the job. There were the lies top executives told so that they could line their own pockets while workers and shareholders lost billions. But after all these disclosures, the question remains: Why? Why did a thriving, innovative company with rock-solid cash flow and reliable earnings suddenly flame out in a maelstrom of corruption, fraud and skulduggery? The answer, Texas business journalist Robert Bryce reveals in this incisive and entertaining book, is that bad business practices begin with human beings. Pipe Dreams traces Enron's astounding transformation from a small regional gas pipeline company into an energy Goliath...and then tracks step-by-step, business decision by business decision, extra-marital affair by extra-marital affair, how, when and why the culture of Enron began to go rotten, and who was responsible. The story of Enron's fall isn't just a story about accounting procedures; it's a story about people. Bryce tells that story with all the personality, passion, humor, and inside dope you'd hope for, and the result is an un-putdownable read in the tradition of Barbarians at the Gate and The Predators' Ball.
