Why Enron Went Bust

How will the Enron saga resolve? This question is probably more interesting to more American’s today than the latest Survivor series. With the amount of attention and coverage that Enron has been given, it is hard not to take interest in the drama. Enron is another example of how a big business can go unwatched and mysteriously crumble almost overnight. There is a full cast of characters in the Enron story. It reminds me of the board game “Clue,” who did it, in what room, and how was it done?


Today it seems like a trend for big businesses to find themselves in financial trouble while the executives of these companies find their wallets overflowing with millions of dollars. Such companies are Lucent, Global Crossing, Kmart, and WorldCom. Lucent Technologies recently fired their CEO because of missing revenue and earning target’s on numerous occasions, not to mention investigations dealing with fraudulent accounting practices. Former CEO, Richard McGinn led the company in this downward direction and was rewarded $12.5 million in cash and stock.

Enron leaves many people to ask two questions, can we trust big business and who should watch over and regulate big business? As investors and employees, we are sitting back and not asking any questions. We look at increased revenue, rise on stock returns, as well as expansion of the company and assume everything is on the “up and up.” In the case of Enron, if anyone questioned finances, Skilling simply told them that it was unethical to inquire and Enron was a very simple, explicit company. Statements like these made smart, self-prided businesspersons uneasy about questioning any of Enron’s finances.

Perhaps what Skilling said was true, maybe Enron was run on the “up and up.” Did their arrogance lead to their demise? It is without argument that this company was conceited, as seen by a sign hanging in their lobby stating: The Worlds Leading Company. One statement, that is contradictory by Skilling, was that Enron’s financial statements were not clear and simplistic. Enron’s financial reports have been given the description as being superbly complex. So complex that it would do a superb job in covering up illegal actions.

Once questions were asked of Enron, murky business actions were revealed. The fact that the company restated its earnings for the past 4 ¾ years, because of unconsolidated entries, leaves one to be suspicious of Enron’s ethics or their ability to keep records correctly. In our culture, it is looked down upon when someone says one thing but does another. Skilling was aggressively selling his stock in Enron when there was a 7% return. He has also been credited as to saying that Enron stock should be worth $126, instead of $80. Why would any investor sell their stock when you are this confident in it and are seeing such a great return?

The most interesting actions of Enron lie in its partnership with a “related party.” This partnership seemed legal and ethical until questioned. At that time, it was revealed that this “related party” was run by Enron’s CFO, Fastow. The mere fact that Fastow ran this party makes the partnership question conflict-of-interests. Why would Fastow be the CFO of one company and run the other company involved in a partnership unless something illegal was taking place? Also, if nothing illegal was taking place, then why not admit that Fastow was the one who ran the other half of the partnership?

Throughout this article, the reader is asked the same question, why do we trust big businesses? To the best of my ability, I can answer this with one word: greed. Our society, in general, is a very greedy society. We are always looking for the easiest way to make money or to succeed. Many people might have speculated that Enron was not being run correctly before last February. The fact that the company foresaw its earnings every quarter, right down to the penny, would make investors even more willing to dump money into Enron. As long as the company was “showing” profits, everyone swept Enron under the carpet, until it had to be dealt with. One thing we can learn from the Enron story is the lack of business ethics in the business world. I personally feel that Enron should be made an example of. Doing this will prevent other people/companies in the future from being so unethical. We already proved, as a society, that we will not question the integrity of something as long as we are profiting from it. Someone needs to watch big businesses and keep them in check, because we wont. In the words of Edmund Burke, “The only thing necessary for the triumph of evil is for good men to do nothing.”


The Wall Street Journal. Lublin, Joann S. Tuesday, February 26, 2002. B1-B4 Column 2

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