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.