Enron 's Impact On Enron

Kenneth lay, the founder of Enron, did not start his life as a deceiving criminal. He was born in Missouri in 1942. He went to school at the university of Missouri where he got a master’s degree in economics. After serving briefly in the us navy he got into the Gas business starting a career working for Exxon predecessor Humble Oil & Refining. He quickly moved up the ladder and found himself as president and CEO of Houston Natural Gas Co in 1981. Four years later his company merged with InterNorth, a pipeline company from Nebraska, and Enron was born. Kenneth Lay was made CEO of Enron not long after the merger. (1)

Enron was a publicly traded energy company formed in 1985 by Kenneth Lay when Internorth acquired Houston Natural Gas; the company, based in Houston Texas, Enron (originally entitled “EnterOn”, but was later subjected to abbreviation), worked specifically in power, natural gas, and paper and even ventured into various non-energy-based fields as they expanded, including: Internet bandwidth, risk management, and weather derivatives. Several years after the founding of the company, Enron hired a man by the name of Jeffrey Skilling, a former chemical and energy consultant, who, upon promotion, created a team of high-level administrative employees who, by using special purpose entities, lackluster reporting of finances, and unethical accounting practices, hid billions of dollars of debt from unsuccessful arrangements and ventures from stock holders and the U.S. Securities and Exchange Commission. Enron executives achieved this scheme by using a controversial accounting method entitled “mark-to-market accounting,” which in essence, assigns value to financial commodities based on their projected market values; mark-to-market accounting is the opposite of cost-based accounting which records the price of a commodity at the purchase price. As a result of this new method, Enron’s worth skyrocketed to over $70 billion at one time, only to collapse miserably several years later—ultimately costing thousands upon thousands of people their jobs, pensions, and retirements. Enron’s employees

Enron’s demise was led by the arrogance and greed of senior executives. The belief was they had to be the best business leaders in the United States. Many also believe that there was a conflict of interest with the auditing firm because not only did they serve as the auditing firm, they also served as a consulting firm to Enron. This enabled them to fabricate financial statements by building assets and hiding debt from investors. The loss of the recorded $1.2 billion shareholders equity meant that many victims of this fraud lost their jobs and their retirement funds.

The company Enron was formed in 1985 after two natural gas companies, Houston Natural Gas and InterNorth merged together. Kenneth Lay, former chief executive officer of Houston Natural Gas was named CEO of Enron and a year later, Lay was assigned to the chairman of Enron. A few years later, Enron launched a website to allow customers to buy stock for Enron, making it the largest business site in the world. The growth of Enron was rapid; it was even named seventh largest company on the Fortune 500 list; however things began to fall apart in 2001. (News, 2006). In the third quarter of that same year, Enron posted an enormous loss of over $600 million in four years. This is one of the reasons why one of the top executive resigned even though he had only after six months on the job. Their stock prices fell dramatically. Eventually, Enron filed for bankruptcy protection. This caused many investors to lose money they had invested in the company and employees to lose their jobs and their investments, including their retirement funds. The filing of bankruptcy and the resignation of one of the top executives, also led to an investigation by the U.S. Securities and Exchange Committee, which proved to be one of the biggest scandals in U.S. history. (News, 2006). All former senior executives stood trial for their illegal practices.

In 1985 Houston Natural Gas merged with Internorth and renamed itself Enron. In 1990 Jeffrey Skilling was hired to focus on trading in commodities. Skilling later becomes the president of Enron in 1997. Andrew S. Fastow is named as Enron’s financial chief in 1998. According to the New York Times Fastow created partnerships which the company claimed were to buy company assets which were not performing very well. We now have come to realize that these partnerships were instituted in order to conceal the company’s debt and give an image of overinflated profits to the public (2006). In 2000 through 2000 there was shuffling around of key leadership. Skilling resigned citing personal reasons only. Six days later Sherron Watkins approaches CEO

If Lay was Batman, Skilling was his Robin--assuming Batman and Robin were criminals and not crime fighters. Both equally responsible, both equally morally corrupt, and both equally reprehensible. Skilling would serve as the president and COO for the majority of the time period relevant to this scandal, and ultimately directed a large part of the deception that occurred in that time. As before mentioned, Skilling, like Lay, was a man of big ideas. Some would say unrealistic ideas. His motto was very much, "build castles in the air, then put the foundations under them." He was infamous for setting financial goals that were by all means unattainable under normal operations. In particular, Skilling would ask financial consultants what amount of revenue would increase the stock price of Enron to market analysts ' projected value, then set that as the company goal, regardless of whether achieving it was even possible.

The Enron Corporation started in 1985 by Kenneth Lay and was the result of a merger between Houston Natural Gas and InterNorth Corporation (Madsen & Vance, 2009). Enron had the biggest gas transmission system in the U.S which consisted of a network of 38,000 miles of pipeline (Giroux, 2008). After the addition of Jeffrey Skilling, Enron transformed itself from a producer and distributor of natural gas to a trading company (Chandra, 2003). Enron lobbied hard for deregulation and was capable of being able to trade almost anything (Chandra, 2003).This idea required vast amounts of liquidity (Chandra, 2003). Enron’s revenue began to increase at a rapid speed (Chandra, 2003). Skilling developed a workforce that enabled the concealing of billions of dollars through the use of special purpose entities, fraudulent financial reporting, and accounting inadequacies (Giroux, 2008). Enron committed fraud over an extended period of time to manipulate earnings in order to maintain compensation of central executives. Despite the collapse of Enron, many executives were paid millions of dollars while other Enron workers were terminated and lost all of their retirement funds (Giroux, 2008). Enron has went down in history as not only being the biggest bankruptcy in U.S. for that time period, but also the largest audit failure (Giroux, 2008).

The story of Enron’s bankruptcy, an US company that provided products and services related to natural gas, electricity and communications has been one of the most serious cases of unethical practices in the American economy. The company directors in association with their accountants and lawyers created subsidiaries in order to generated false earnings, avoid taxes, inflated assets and hide losses. Finally in 2001 the company lost the credibility in the market and the scandal was exposed affecting thousands of employees and investors. (Tonge, Greer, & Lawton, 2003)

Jeff Skilling was promoted to COO and “transformed Enron from a sleepy pipeline company to an unregulated financial services company trading in energy futures, paper and pulp products, weather derivatives, airport landing rights and commodities” (Tshaonline.org, 2015) This strategy allowed Enron to go from making $13 billion a year to $100 billion leading to Skillings next promotion as CEO in 2001.

One of the biggest corporate financial frauds in history was Enron scandal, where the relationship between the company governance and their auditors - Arthur Andersen was one of the factors that helped the company hide its frauds, which eventually led Enron’s bankruptcy. The accounting firm was accused of not acting independently and misstating Enron 's accounts such as keeping huge debts off balance sheets. Some believe that the auditors had gone along with Enron’s questionable accounting practices in order to maintain their work. As a result, the shareholders lost $74 billion further (further depressing the stock market), thousands of employees and investors lost their retirement accounts, and many employees lost their jobs. In addition,

The organizational structure of Enron was a calculated one with a clique that was thought as being the “smartest” guiding the rest of the workers. It included Kenneth Lay: Chairman, and Chief executive officer, Jeffrey Skilling: President, Chief operating officer, and CEO (February–August 2001), and Andrew Fastow: Chief financial officer. With the leaders known to be wise and smart, the workers and traders believed in them. They did what was asked of them by the employers. The clique ensured money was not an issue for the workers and subsidies were allocated to them at will. This in itself encouraged the workers to be hardworking and yet

Enron was a major commodities and energy company that was headquartered in Houston, Texas. It was a company once very respected and, in the eyes of the public, very profitable. It placed in the top 20 on the Fortune Global 500 in 2000, and its stock was considered at a time to be blue chip, guaranteed to make stable gains over time. Enron formed as a merger between two natural gas companies, Houston Natural Gas and InterNorth, officially becoming the company known as Enron in 1979, after newly appointed CEO Kenneth Lay moved the company’s headquarters and began a search for a name to replace the current operating name of HNG/InterNorth. Enron became one of the world’s prominent electricity and natural gas companies before its bankruptcy in 2001, employing over 20,000 employees. Its operations were largely focussed within the United States, but they had some international outreach. Upon officially becoming Enron, the company leadership slowly transitioned the focus of the company from energy production to trading and supply: making its profits off of margins of energy commodities it traded. It was named ‘America’s Most Innovative Company’ by Fortune for six consecutive years (1996-2001), largely because of the success of Enron Online, an electronic site that allowed users to trade energy commodities with the company. However, failures of Enron in the retail energy market, water market, and large investments into high-speed telecom that

Enron Corporation was an energy company founded in Omaha, Nebraska. The corporation chose Houston, Texas to home its headquarters and staffed about 20,000 people. It was one of the largest natural gas and electricity providers in the United States, and even the world. In the 1990’s, Enron was widely considered a highly innovative, financially booming company, with shares trading at about $90 at their highest points. Little did the public know, the success of the company was a gigantic lie, and possibly the largest example of white-collar crime in the history of business.

Ethics in the business world can often times become a second priority behind the gaining of profits and success as a company. This is the controversial issue that led to the Enron scandal and ultimately the fall of this company. Enron Corporation was an energy company, and in the peaks of their success, they were the top supplier of natural gas and electricity throughout America. Enron Corporation came about from a merger between Houston Natural Gas and InterNorth. Houston Natural Gas was a gas providing company formed in Houston during the 1920’s. InterNorth was a company formed in Nebraska during the 1930’s and owned one of America’s largest pipeline networks. In 1985, Sam Segnar, the CEO of InterNorth bought out Houston Natural Gas for $2.4 billion. A year later in 1986, Segnar retired and was replaced by Kenneth Lay, who renamed the company and created Enron. Enron was the owner of the second largest pipeline in America that measured over 36,000 miles. The company was also the creator of the “Gas Bank”, which was a new way to trade and market natural gas and served as an intermediary between buyers and sellers. As the company continued to develop, it became more of a trader rather than a producer of gas. This trading extended into coal, steel, water and many other areas. One of Enron’s largest successes was their creation of a website called, “Enron Online” in 1999, which quickly became one of the top trading cites in the world. By the year 2000 Enron as a company was

Most of the world has heard of Enron, the American, mega-energy company that “cooked their books” ( ) and cost their investors billions of dollars in lost earnings and retirement funds. While much of the controversy surrounding the Enron scandal focused on the losses of investors, unethical practices of executives and questionable accounting tactics, there were many others within close proximity to the turmoil. It begs the question- who was really at fault and what has been done to prevent it from happening again?