Enron Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 and was one of the world's leading electricity, natural gas, pulp, paper, and communications companies, with claimed revenues of nearly $101 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years .
Ken Lay, Chairman and CEO • Big picture; optimistic; tended to avoid controversy “ Ken gravitates toward good news” Jeffrey Skilling, President • Proponent of big ideas; less interested in details “ Skilling is a designer of ditches, not a digger of ditches.” Andrew Fastow, CFO • Ambitious; unwilling to let the rules get in the way “ I don’t know that he ever had a moral compass”
• Enron Corp (Houston, TX) .Enron Oil (Valhalla, NY) Enron Oil chiefs involved in irregularities – Lay imposed weak sanctions; allowed execs to continue Enron Oil faced devastating exposure – Division head, CFO had siphoned off money; both fired – Lay surprised both by losses and impropriety
Because Enron believed it was leading a revolution, it pushed the rules. Employees attempted to crush not just outsiders but each other. Competition was fierce among Enron traders, to the extent that they were afraid to go to the bathroom and leave their computer screen unattended and available for perusal by other traders.
On July 13, 2001, Skilling resigned as CEO. He claimed it was for personal reasons. The real reason was that Enron was heading for trouble, and he didn’t want to face the music. There were at least five reasons that could foreseeably lead to disaster:
(i) The firm’s stock was down about 40% for the year. If it kept falling, several of Fastow’s SPEs – those primarily financed with Enron stock – would be under water.
(ii) India had stopped making payments for electricity generated by the Dabhol plant. Enron had shuttered the plant in May and, despite the Bush administration pressuring India on Enron’s behalf, was facing the prospect of writing off its entire $900 million investment.
(iii) The company had recently spent $326 million to buy back shares of the failed Azurix water company.
(iv) Severe shortages of electricity in California had led to rolling blackouts and accusations that Enron had manipulated prices.
(v) The venture in bandwidth trading failed lamentably, and ventures in metals and pulp trading wereracking up losses.
The company was in a cash crunch and was trying to sell assets to raise cash. Skilling could see the writing on the wall, but so could most of Enron’s senior management. Many had been liquidating their holdings in Enron stock for months.
Many people suffered from Enron’s failure, but employees were hit especially hard. Thousands were laid off with just $4,500 in severance pay.
Enron had encouraged employees to invest their pension assets in the company’s stock. Employees who had foolishly done so lost pension savings as well as their jobs.
In June 2002, Arthur Andersen was convicted of obstruction of justice for its destruction of Enron documents. Andersen, which was once the largest accounting firm in the U.S., was barred from auditing clients.
The government nearly had a scandal on its hands, as many politicians had Enron as a major contributor to their campaigns.
The energy industry went through a crisis, since other companies in the industry were Enron copycats and had very similar deals and trading positions in place when Enron went down. And investors took a big hit.
Finally, even with its downfall, some good has come – regulators are seeking to improve standards and practices in accounting, corporate governance, risk control, and pension fund administration, to ensure that another Enron does not emerge.