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What Went Wrong at Enron: Everyone's Guide to the Largest Bankruptcy in U.S. History
An easy answer guide to the difficult questions surrounding EnronWhat Went Wrong at Enron explains the critical steps, transactions, and events that led to the demise of a company that was once considered one of the most innovative corporations in the United States. Energy risk management expert Peter Fusaro gets inside Enron and provides a coherent account of the who, why, where, and when of this corporate debacle, without sacrificing the complexity of what has happened. Enron has been front-page news for months, but confusion still remains about what actually happened. What Went Wrong at Enron is written for readers who find themselves wondering what exactly is an energy trading company, what was the sequence of events that caused the largest corporate bankruptcy in U.S. history, and what does this all mean for me.
- GenresNonfiction
256 pages, Kindle Edition
First published January 10, 2002
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Displaying 1 - 6 of 6 reviews
June 8, 2020
The late Kenneth Lay once famously or rather infamously in hindsight said "In the case of Enron we balance our positions all the time". This statement proved to be one of the most ridiculed statements in the history of Corporate Governance as the financial affairs of Enron were riddled with murky imbalances. Diversion of debts, inflated revenues and illusory profits transformed the once darling of the American stock market into a bankrupt pariah.
Jeffrey Skilling, Kenneth Lay and Andrew Fastow have become household names - for all the wrong and unfortunate reasons. Their single biggest collective accomplishment lay in the concoction of an intricate pattern of corporate shenanigans that involved creation of Special Purpose Entities ("SPEs"), cooking of financial statements and overstating earnings that led to one of the biggest financial scandals, and consequently the collapse of one of the biggest energy conglomerates in the world - Enron. All this was done with the connivance of Arthur Andersen, one of the most reputed former business consultancy firms.
Peter Fusaro and Ross Miller in this small book give a bird's eye view of the events that triggered the downfall of Enron. Not going into the intricate details, they aim not to provide a comprehensive low down of the monumental fraud, but to piece together the broad contours of the various schemes contrived by the unscrupulous men at the helm of the company. Some of the details are unbelievable and one can be forgiven in assuming that they are straight out of a science fiction movie. "Star Wars" inspired titles for SPEs such as Joint Energy Development Investments ("JEDI") and Chewco (named after the Wookie Chewbacca) provide a strange sense of morbid humour to the dark deeds which in their magnitude would have given even Darth Vader's doings a real run for their money! Add to that Enron's sadistic 'rank and yank' policy, according to which a certain percentage of work force would be deliberately 'ranked' in the under-performing category which would make it easier to 'yank' them out subsequently, one is left bewildered wondering how the Forbes magazine consistently rated this company of thugs as one of the most admired entities in the United States of America.
Ill-conceived investments such as a doomed foray into broadband, the much maligned Dabhol power project in India and the billion dollar baby - Enron Online all were projects that paid scrupulous lip service to the free market pronouncements of the Economist Ronald Coase, a Nobel laureate who was much admired by the late Kenneth Lay, and in whose philosophy, Lay placed absolute trust. Where there were no markets that were "free", Enron would "create" them! Liberal and generous contributions to political campaigns that did not distinguish between Democrats or Republicans also provided cushy political backing for Enron as the company strode ahead in its mindless ambitions to be a world leader in energy, Power, paper and other non-core industries in which it had absolutely no competence. Much of these ventures were headed by the 3 inch heeled Stiletto wearing Rebecca Mark, who was known (not too very fondly) as "Mark The Shark".
Fusaro and Miller trace in a honest fashion the arrogance and hubris of a trio of Corporate Chieftains who sacrificed integrity at the wicked alter of greed, and in the process not only crafted their own epitaphs but also engineered the financial downfall of innumerable innocents who had banked their future upon the prospects of a conglomerate that they believed in and loved, but into whose workings they were blissfully and unwittingly not aware of. A whiff of greed metamorphosed into a cascading whorl of cataclysm wreaking wanton destruction and causing untold grief.
"What Went Wrong at Enron" is a timely reminder for strengthening ethics based controls in Multinational Enterprises and to keep in check the insatiable greed of corporate pillagers.
Jeffrey Skilling, Kenneth Lay and Andrew Fastow have become household names - for all the wrong and unfortunate reasons. Their single biggest collective accomplishment lay in the concoction of an intricate pattern of corporate shenanigans that involved creation of Special Purpose Entities ("SPEs"), cooking of financial statements and overstating earnings that led to one of the biggest financial scandals, and consequently the collapse of one of the biggest energy conglomerates in the world - Enron. All this was done with the connivance of Arthur Andersen, one of the most reputed former business consultancy firms.
Peter Fusaro and Ross Miller in this small book give a bird's eye view of the events that triggered the downfall of Enron. Not going into the intricate details, they aim not to provide a comprehensive low down of the monumental fraud, but to piece together the broad contours of the various schemes contrived by the unscrupulous men at the helm of the company. Some of the details are unbelievable and one can be forgiven in assuming that they are straight out of a science fiction movie. "Star Wars" inspired titles for SPEs such as Joint Energy Development Investments ("JEDI") and Chewco (named after the Wookie Chewbacca) provide a strange sense of morbid humour to the dark deeds which in their magnitude would have given even Darth Vader's doings a real run for their money! Add to that Enron's sadistic 'rank and yank' policy, according to which a certain percentage of work force would be deliberately 'ranked' in the under-performing category which would make it easier to 'yank' them out subsequently, one is left bewildered wondering how the Forbes magazine consistently rated this company of thugs as one of the most admired entities in the United States of America.
Ill-conceived investments such as a doomed foray into broadband, the much maligned Dabhol power project in India and the billion dollar baby - Enron Online all were projects that paid scrupulous lip service to the free market pronouncements of the Economist Ronald Coase, a Nobel laureate who was much admired by the late Kenneth Lay, and in whose philosophy, Lay placed absolute trust. Where there were no markets that were "free", Enron would "create" them! Liberal and generous contributions to political campaigns that did not distinguish between Democrats or Republicans also provided cushy political backing for Enron as the company strode ahead in its mindless ambitions to be a world leader in energy, Power, paper and other non-core industries in which it had absolutely no competence. Much of these ventures were headed by the 3 inch heeled Stiletto wearing Rebecca Mark, who was known (not too very fondly) as "Mark The Shark".
Fusaro and Miller trace in a honest fashion the arrogance and hubris of a trio of Corporate Chieftains who sacrificed integrity at the wicked alter of greed, and in the process not only crafted their own epitaphs but also engineered the financial downfall of innumerable innocents who had banked their future upon the prospects of a conglomerate that they believed in and loved, but into whose workings they were blissfully and unwittingly not aware of. A whiff of greed metamorphosed into a cascading whorl of cataclysm wreaking wanton destruction and causing untold grief.
"What Went Wrong at Enron" is a timely reminder for strengthening ethics based controls in Multinational Enterprises and to keep in check the insatiable greed of corporate pillagers.
June 13, 2024
It's been nearly a quarter of a century since the Enron accounting scandal unfolded in the United States but became dinner table conversations across the world, however the audacious and heartless lack of ethics of the senior leadership of the organization remains a prominent example of how not to run a company even today. As the son of two Chartered Accountants, the Enron scandal was more known to me as the fall of Arthur Andersen rather than of the brazen financial misadventures of Enron itself. This has changed recently as I read the book after meeting the author at an event in March. Although I have read about the scandal in other books, most recently on the major damage caused by McKinsey, this is the first book I have read entirely dedicated to the subject and the lucidity especially in the style of the authors makes it a good first read on the subject.
The author does a fantastic job in hooking the reader with a rather offbeat introduction of triggering a relatable childhood memory of trading cards and Star Wars. The running gag of the usage of Star Wars reference in the meat of the narration is a near novelesque literary device to cut the tension when the description of the scandal is at its height.
The highlight of the book is its relatability and affable tone written for a non-financial reader. I particularly appreciated the quasi dismissive, quasi humorous tone of the book running through the text which makes the analysis more palatable to the reader compared to the complex financial transactions Enron tried to conjure. The backgrounds and personal histories of the main Enron executives- Lay, Skilling, Fastow, Mark etc. and the "Cast of Characters" at the end makes the reader see the human motivations behind the scam. The purported bravado of these characters in the first three quarters of the book are well contrasted by the last chapter covering the trial where each of them are feigning ignorance and projecting newfound muteness. The second standout of the book lie actually in its after chapters with the detailed timeline and the actual reference documents taken from the Enron files which complement the main text well. Both sections offer a great source for the reader to understand the sequence of the happenings and the depth of the oversight/inaction by the executives.
Despite the relatability of the text, I found particularly absent the depth of analysis of Andersen's role in the scandal and the role the lawyers played in presenting the case of the executives to the Senate and House of Representatives. Perhaps, the childhood accounting conversations I heard my parents have triggered an interest which this book doesn't quench. As an immigrant who has closely seen the power of democratic institutions in the United States, I was also curious to know the blow by blow details of the Senate and House proceedings which this book just skims over.
I may forget the contents of this book in the long run as I don't intend to further excavate on Enron apart from the role of Arthur Andersen. However, the parting shots on the need for strong ethics in upbringing, in education and the failure of capitalism when people take decisions blinded by greed are hard hitting. I will possibly quote them in future debates I have with those who see capitalism as the closest to a silver bullet. Maybe when you read the book, it will also stay with you.
The author does a fantastic job in hooking the reader with a rather offbeat introduction of triggering a relatable childhood memory of trading cards and Star Wars. The running gag of the usage of Star Wars reference in the meat of the narration is a near novelesque literary device to cut the tension when the description of the scandal is at its height.
The highlight of the book is its relatability and affable tone written for a non-financial reader. I particularly appreciated the quasi dismissive, quasi humorous tone of the book running through the text which makes the analysis more palatable to the reader compared to the complex financial transactions Enron tried to conjure. The backgrounds and personal histories of the main Enron executives- Lay, Skilling, Fastow, Mark etc. and the "Cast of Characters" at the end makes the reader see the human motivations behind the scam. The purported bravado of these characters in the first three quarters of the book are well contrasted by the last chapter covering the trial where each of them are feigning ignorance and projecting newfound muteness. The second standout of the book lie actually in its after chapters with the detailed timeline and the actual reference documents taken from the Enron files which complement the main text well. Both sections offer a great source for the reader to understand the sequence of the happenings and the depth of the oversight/inaction by the executives.
Despite the relatability of the text, I found particularly absent the depth of analysis of Andersen's role in the scandal and the role the lawyers played in presenting the case of the executives to the Senate and House of Representatives. Perhaps, the childhood accounting conversations I heard my parents have triggered an interest which this book doesn't quench. As an immigrant who has closely seen the power of democratic institutions in the United States, I was also curious to know the blow by blow details of the Senate and House proceedings which this book just skims over.
I may forget the contents of this book in the long run as I don't intend to further excavate on Enron apart from the role of Arthur Andersen. However, the parting shots on the need for strong ethics in upbringing, in education and the failure of capitalism when people take decisions blinded by greed are hard hitting. I will possibly quote them in future debates I have with those who see capitalism as the closest to a silver bullet. Maybe when you read the book, it will also stay with you.
September 17, 2024
TWO FINANCIAL WRITERS SUMMARIZE THE SPECTACULAR COLLAPSE OF ENRON
The authors wrote in the Preface to this 2002 book, "While Enron may well be the most spectacular and scandalous business failure in history, at its core was a good idea that will on long after memory of it fades away. In an increasingly networked world, companies that make it easy for people and businesses to trade---that set fair rules of engagement and honor those rules themselves---will likely prosper." (Pg. xiii)
They state, "The fact that the business failed because of managerial incompetence is not the real problem here; most entrepreneurial firms make a series of mistakes before they uncover the formula for success. What is disturbing is that Enron management turned a blind eye to activities that upon their discovery would shatter the illusion of rapidly growing earnings, and then apparently enlisted their accountants to cover up the true extent of the damage." (Pg. 22-23)
They add, "Enron's story follows the standard hedge-fund scenario, but with an important twist: The risks that Enron took in an effort to maintain its rapidly growing profits included engaging in legally questionable activities." (Pg. 36)
They observe, "In 1993, it joined up with the California Public Employees' Retirement System (CalPERS)... Getting CalPERS in on the deal ... gave Enron new credibility. As the largest public pension fund and one of the largest institutional investors, CalPERS' seal of approval was extremely valuable. Professional money managers were often willing to take a loss on business that they did with CalPERS knowing that simply being chosen by CalPERS would open doors at other pension funds." (Pg. 61)
They note, "There were two conflicting strategies at Enron: To invest in energy, telecommunications and other technology businesses required that Enron assume more debt to finance these enormous investments. The other strategy---'asset lite'---required that it have the creditworthiness to do business with counterparties in the financial markets. These conflicting strategies---and the accounting methods that were used to conceal more than then revealed---only put Enron on a collision course with the inherent contradiction of its own vision as a company." (Pg. 68)
They admit, "Whatever temporary benefit Enron may have gotten either directly or indirectly from higher electricity prices that began in California and ultimately spread to the rest of the western United States, the ill will that high prices and electricity shortages created would come back to haunt it. Many Californians believed that the power companies fabricated the electricity shortages for their own economic gain. Indeed, the head of California's Public Utilities Commission ... testified... that Enron used phony trades ... to create a 'phantom congestion' at key points in the California power grid and generate more phony profits for itself... public disclosure of these ominously named strategies would contribute to a public-relations nightmare for Enron and its ilk." (Pg. 93-94)
They state, "[Enron head] Ken Lay gave pep talks and sent upbeat e-mails... Because many Enron employees had massive holdings of Enron stock in their 401(k) retirement plans... the falling stock price was making them poorer and destroying morale. Lay's e-mails would tout the stock, at one point telling them that he thought it was 'an incredible bargain.' The problem was that until [Jeffrey] Skilling's departure Lay had been systematically disposing of large quantities of Enron stock..." (Pg. 115)
They also record, "When it declared bankruptcy Enron immediately fired 4,000 workers, and more job losses would follow. Many employees learned by voice mail that they had been terminated. The shabby treatment that the rank-and-file workers received from Enron management would sting even more when they learned that shortly before Enron had declared bankruptcy it had provided top management with enormous bonuses ostensibly to keep them from jumping ship while Enron reorganized." (Pg. 123)
This book is a useful, not-too-long, and very readable summary of the Enron fiasco.
The authors wrote in the Preface to this 2002 book, "While Enron may well be the most spectacular and scandalous business failure in history, at its core was a good idea that will on long after memory of it fades away. In an increasingly networked world, companies that make it easy for people and businesses to trade---that set fair rules of engagement and honor those rules themselves---will likely prosper." (Pg. xiii)
They state, "The fact that the business failed because of managerial incompetence is not the real problem here; most entrepreneurial firms make a series of mistakes before they uncover the formula for success. What is disturbing is that Enron management turned a blind eye to activities that upon their discovery would shatter the illusion of rapidly growing earnings, and then apparently enlisted their accountants to cover up the true extent of the damage." (Pg. 22-23)
They add, "Enron's story follows the standard hedge-fund scenario, but with an important twist: The risks that Enron took in an effort to maintain its rapidly growing profits included engaging in legally questionable activities." (Pg. 36)
They observe, "In 1993, it joined up with the California Public Employees' Retirement System (CalPERS)... Getting CalPERS in on the deal ... gave Enron new credibility. As the largest public pension fund and one of the largest institutional investors, CalPERS' seal of approval was extremely valuable. Professional money managers were often willing to take a loss on business that they did with CalPERS knowing that simply being chosen by CalPERS would open doors at other pension funds." (Pg. 61)
They note, "There were two conflicting strategies at Enron: To invest in energy, telecommunications and other technology businesses required that Enron assume more debt to finance these enormous investments. The other strategy---'asset lite'---required that it have the creditworthiness to do business with counterparties in the financial markets. These conflicting strategies---and the accounting methods that were used to conceal more than then revealed---only put Enron on a collision course with the inherent contradiction of its own vision as a company." (Pg. 68)
They admit, "Whatever temporary benefit Enron may have gotten either directly or indirectly from higher electricity prices that began in California and ultimately spread to the rest of the western United States, the ill will that high prices and electricity shortages created would come back to haunt it. Many Californians believed that the power companies fabricated the electricity shortages for their own economic gain. Indeed, the head of California's Public Utilities Commission ... testified... that Enron used phony trades ... to create a 'phantom congestion' at key points in the California power grid and generate more phony profits for itself... public disclosure of these ominously named strategies would contribute to a public-relations nightmare for Enron and its ilk." (Pg. 93-94)
They state, "[Enron head] Ken Lay gave pep talks and sent upbeat e-mails... Because many Enron employees had massive holdings of Enron stock in their 401(k) retirement plans... the falling stock price was making them poorer and destroying morale. Lay's e-mails would tout the stock, at one point telling them that he thought it was 'an incredible bargain.' The problem was that until [Jeffrey] Skilling's departure Lay had been systematically disposing of large quantities of Enron stock..." (Pg. 115)
They also record, "When it declared bankruptcy Enron immediately fired 4,000 workers, and more job losses would follow. Many employees learned by voice mail that they had been terminated. The shabby treatment that the rank-and-file workers received from Enron management would sting even more when they learned that shortly before Enron had declared bankruptcy it had provided top management with enormous bonuses ostensibly to keep them from jumping ship while Enron reorganized." (Pg. 123)
This book is a useful, not-too-long, and very readable summary of the Enron fiasco.
May 4, 2021
This is a concise version of the Enron scandal. Though the book is short, less than 300 pages, it still covers a lot of information. The authors have taken care to structure the book well, and the content brief and focused. The book even has a well written time line and some original copies of the Enron memos. I would recommend this book as the first choice for readers who want to understand the whole scandal, based on its brevity and details.
May 16, 2014
What really went wrong at Enron?
A question that cannot be answered easily due to its nature of complexity. Thousands and hundreds investors, including Enron's employees who vested their retirement benefits in the s401k plan solely with Enron shares. The horrible downfall alarmed the investment community, hurt the professional society (accountant, lawyer, underwriter etc.) and credibility of the monitoring commission. The U.S. government reacted with the new legislation (Sabanes-Oxley Act) as an attempt to tackle the problem, trying to put the company¡¦s management back on track to shoulder its fiduciary duty to the company's shareholder. But, does it work? The extent to which the various parties' responsibilities is still clouded and unclear.
If we do not really analyze the root causes which led to the Enron's downfall, we never know the answer. This book, written with the targeted general audience, is published at the right time to give the public a good chance to find the ashes in the smoke. At least for the moment.
According to this book, the tragedy was played by an arrogant CEO, greedy senior executive, loyal whistleblower, with the backdrop of a wrongly conceived free economy principle. The book is well written and gives insightful analyses based on the available evidence and traces. Some of the factors leading to the tragedy noted by the authors are:
- The use of SPE (Special Purpose Vehicles) in accounting to keep off the accounting profits as well as to hide the potential liabilities
- The constantly fearing environment built by the Corporate Culture emphasizing on a sense of urgency
- Over-extension of operations in the deregulated energy and telecommunication market
- Mark-to-market accounting principles
- Less than full company¡¦s disclosure tendency
- Valuation problem of customized contracts
- Making commitment as a counter-party to every trade in arbitrage markets
- Trading from natural gas to electricity to bandwidth to 1800 different products in the Enron online
- Conflicting company¡¦s strategy: asset-lite vs. debt heavy financed investments
- Manipulated earning estimated to meet expectations
- Deals financed by high Enron¡¦s stock price
- Excessive investment in optic fibre networks
The list could go on and on. In fact, Enron went to the extent that deals were made just for the sake of making them. The more you read about the book, the more you feel it is a Shakespearean tragedy ¡V things are certain to get worse with all of these interrelated factors playing on stage. The general audience, those who believed that the play had a good ending, bought the tickets but found that the play was ultimately turn out to be a tragic one. They suffered. However, the director said: "You bought the tickets because you believed in the play had a good ending. I didn't say that it would end in that way." Refund? No.
The investigation into Enron's alleged sham trading and potential fraud scheme is still in progress as of this writing. I highly recommend the book to the general readers, although it is better if you are financially literate. It is a thought-provoking and interesting read, especially to the CPAs.
A question that cannot be answered easily due to its nature of complexity. Thousands and hundreds investors, including Enron's employees who vested their retirement benefits in the s401k plan solely with Enron shares. The horrible downfall alarmed the investment community, hurt the professional society (accountant, lawyer, underwriter etc.) and credibility of the monitoring commission. The U.S. government reacted with the new legislation (Sabanes-Oxley Act) as an attempt to tackle the problem, trying to put the company¡¦s management back on track to shoulder its fiduciary duty to the company's shareholder. But, does it work? The extent to which the various parties' responsibilities is still clouded and unclear.
If we do not really analyze the root causes which led to the Enron's downfall, we never know the answer. This book, written with the targeted general audience, is published at the right time to give the public a good chance to find the ashes in the smoke. At least for the moment.
According to this book, the tragedy was played by an arrogant CEO, greedy senior executive, loyal whistleblower, with the backdrop of a wrongly conceived free economy principle. The book is well written and gives insightful analyses based on the available evidence and traces. Some of the factors leading to the tragedy noted by the authors are:
- The use of SPE (Special Purpose Vehicles) in accounting to keep off the accounting profits as well as to hide the potential liabilities
- The constantly fearing environment built by the Corporate Culture emphasizing on a sense of urgency
- Over-extension of operations in the deregulated energy and telecommunication market
- Mark-to-market accounting principles
- Less than full company¡¦s disclosure tendency
- Valuation problem of customized contracts
- Making commitment as a counter-party to every trade in arbitrage markets
- Trading from natural gas to electricity to bandwidth to 1800 different products in the Enron online
- Conflicting company¡¦s strategy: asset-lite vs. debt heavy financed investments
- Manipulated earning estimated to meet expectations
- Deals financed by high Enron¡¦s stock price
- Excessive investment in optic fibre networks
The list could go on and on. In fact, Enron went to the extent that deals were made just for the sake of making them. The more you read about the book, the more you feel it is a Shakespearean tragedy ¡V things are certain to get worse with all of these interrelated factors playing on stage. The general audience, those who believed that the play had a good ending, bought the tickets but found that the play was ultimately turn out to be a tragic one. They suffered. However, the director said: "You bought the tickets because you believed in the play had a good ending. I didn't say that it would end in that way." Refund? No.
The investigation into Enron's alleged sham trading and potential fraud scheme is still in progress as of this writing. I highly recommend the book to the general readers, although it is better if you are financially literate. It is a thought-provoking and interesting read, especially to the CPAs.
September 23, 2013
I've always wanted to know more about Enron. Two more books lined up.
Displaying 1 - 6 of 6 reviews