Analysis Of Enron: The Smartest Guys In The Room
The film started as it introduced Enron, which had taken 16 years to grow 10 billion of assets to 65 billion of assets, and only took 24 days to go bankrupt. The company collapsed so swiftly and so completely, with nothing left. At first glance, one must say that it was pride that brought the company into the situation, but in reality, it was greed, arrogance, intolerance. The people involved were blinded by money and that they did not notice that they were sinking their own life boat. Enron turned into a house of cards. It had been built over a pool of gasoline where it became sort of smoke and mirrors. The Enron scandal is a case of America’s largest corporate bankruptcy. What people’s curiosity wants to know is what happened behind every window of the building, who were the people involved in the happening, and what they can do to prevent the thing from happening again.
The story of Enron is mostly about human tragedy but most people perceive that it’s all about numbers and all the errors in transactions, in which they are not. John Cliff Baxter, an Enron employee, ended his life inside his car by firing the gun to his head, and he even left a suicide note. When Skilling was asked whether this incident has something to do with the Enron issue, and he said that it was not. Skilling claimed that he did not do anything wrong and he worked for the Enron Corporation in the interest of the shareholders of the company.
Enron was the nation’s 7th largest corporation few years before it happened. Experts even praised them as a new business model. The company’s trading floor was manned by America’s best and brightest and high above each is a private staircase where Ken Lay and Jeff Skilling had built their own plush staterooms. These two were known as the smartest guys in the room, the captain of the ship who are too powerful to go down. Like Skilling, Ken Lay said that he did not do anything wrong, and refused to have an interview.
Some suspected the issue as somehow political, because it had been the largest corporate contributor to the presidential campaign of George W. Bush. Though, this issue is not considered as political for it really is a business issue. When Ken Lay’s wife was asked what happened to all the money Ken Lay earned, she said that it is all gone and there is nothing left. The company shredded out news about them were it was indicated there that 20,000 employees lost their jobs and $2 billion in pensions and requirement funds had disappeared. Ken Lay came from a family that had been poor all its life. He worked several jobs as a kid and he had in mind that things could be better. He made an ambition to make wealth for himself.
Since many of the oilmen believed that government is not the solution, but rather government is the problem, they shared views on how to get government out of the energy business. When one of the Enron executives, Rich Kinder, left the company, Ken Lay made a video valentine. It was stated that Enron deals with everyone with absolute integrity and truthfulness but later on, questions were raised whether they were really doing it. This is where the Enrol scandal, also known as the Valhalla scandal, started. The issue with the company was the misappropriation of funds by two traders in 1997. They even compared oil trading with gambling, sometimes you win and sometimes you lose. And with this, Enron seemed to always win, much to Ken Lay’s delight.
Ken Lay saw in Jeff Skilling what he liked about people, those who are visionary and he thought that he would help him make money for Enron. Jeff Skilling idea was the biggest of all and it was to find a new way to deliver energy. Using that idea, in 1992, they became the largest buyer and seller of natural gas in North America. Before he confirmed that he would join Enron, he has a specific condition that he will be permitted to use a certain kind of accounting which is the mark-to-market accounting treatment. It would allow Enron to book potential future profits from the day a deal was signed. Skilling was once known for saying that money was the only thing that motivated people. Before he was 20 years old, he gambled away large amount of money by making wild bets, which to him, he was a risk taker. Then there’s Lou Pai whom Skilling considered as important to the company as well as to himself. He was a mysterious figure, like an invisible CEO. Lou Pai seemed to only be motivated by money and an unusual fascination with strippers where every night he brought with him some of the traders and much of it was charged into Enron’s expense account. Later on, Lou Pai left the company taking with him 250 million dollars. His leaving was mysterious just like his presence in the company. Though a total of 250 million dollars was taken, 1 billion dollars was really the total of the divisions he left behind. Despite this, they manipulated it and hid the fact.
While the company’s stocks kept on increasing, Enron kept on losing its money. By the late 2000, Enron was running out of ideas on how to make the online business look successful. Compared to Titanic, Enron was the captain of the ship. They ignored all the warning signs although there were plenty of them. But the real captain behind Enron is Ken Lay. It was the most ferocious days in the history of Wall Street. Enron’s stock price when up to 90% in the year 2000, and quickly gone up over 50% on the previous year.
Andy Fastow came to the scene as the Chief Financial Officer, wherein his job was to cover up the real financial status of Enron, since Enron was losing its money on a cash basis. They had to make people believe that the stock price is high, where in reality, they had $30 billion debt. No one attempted to speak up for they were all unwilling to challenge the Enron management. They used lots of ways to cover the real status of their business. They even tried to make people believe that there was a power shortage by having rolling blackouts, so that people would pay higher amount for the energy being supplied to them. It was not about a lack of supply.
In the end, it was Jeff Skilling who announced that he was stepping down as the CEO and everyone was surprised. Skilling said that it was because of personal reasons. He said that when he left, the company was in strong financial status, and the company isn’t going to collapse, but maybe a year or something but he’s not the CEO anymore so he has nothing to do with it. Due to this, Ken Lay took over the position of being a CEO. By the ending, people involved were pleaded guilty and was arrested. They committed their wrongdoings and accepted the consequences that they really deserve.
Money. The only thing that motivated people in doing their work, yet the most powerful thing that could trigger a person in doing such immoral actions and behaviors. This is the reason why the company leads to bankruptcy. Most of the workers are craving for money. They crave for the same thing that would cause the fall of the business. To satisfy their cravings, they think of their own ideas which lead the business to an end. Another thing is that, they chose to ignore the warnings being shown to them. They believed in their own instincts, and they did not lower their pride.
In accounting, it is important for a business to be relevant. It is essential that a business influences the decision of users of its financial information. But in order to be relevant, the information must also be reliable. They must come from a source which is accurate. In Enron’s case, they failed to be reliable in a sense that most of the information that they entered are just make-believe. They just want people to believe that they still have high stock prices, where in fact they already accumulate debts. They also failed to practice verifiability since their financial information were not true and accurate. Also, Enron was supposed to have checks and balances which they failed to have. Lastly, they failed to be transparent to their stakeholders. Employees, investors and other stakeholders did not know what was really happening in the business until reports came out. But, maybe the root of the problem was that they falsify their information to let the investors believe that the business is still financially stable, where in fact the law requires that only true and accurate conditions are to be reported.