“Wealth obtained by fraud dwindles, but the one who gathers by labor increases it.” – Proverbs 13:11
The top executives of Enron and its traders diverted company profits to personal accounts. They manipulated earnings, destroyed daily trading and gambled way beyond their limits. They created offshore phony books and falsified bank records in order to avoid taxes and to raise profitability. This also gave freedom to the management to move currency and hide losses. Instead of reducing risks, Enron encouraged its traders to gamble more. They even transformed energy into financial instruments that could be sold like stocks and bonds. The marked-to-market accounting treatment was the beginning of Enron’s major downfall. It has allowed Enron to book potential future profits on the day the deal has been signed which was very subjective and very left open to manipulation. Jeffrey Skilling, the manipulatively-skilled former President and CEO of Enron even created the concept of hypothetical future value, in which expected future profits were tabulated as if it was today’s. These actions were almost like gambling.
Skilling had a very Darwinian view of the world where his “survival of the fittest” principle led to the creation of an unethical working environment in Enron. He pushed for PRC or the performance review committee wherein employees were graded from 1.0 to 5.0, of which 15% of those who will get a grade of 5.0 will be fired. Intimidation was used to keep people silent. CEO Skilling accused that those who didn't understand Enron or a particular structure were not smart enough. Creating a highly competitive environment where employees did not want to appear weak or unintelligent has been the root cause of Enron's problems. Smart people stopped asking questions for fear of looking like they didn't understand the business model. No one had the external motivation to tell the truth about Enron’s real financial situation. Those individuals who did have the integrity to speak honestly about Enron’s financial losses were dismissed.
Profits were aggressively taken to extremes that integrity has become non-existent within the culture at Enron. Looking at it, no one has been more aggressive than the traders. They even traded weather and all sorts of artificial assets. It was just a pump and dump cycle of pushing stock prices up and encashment of millions of dollars at the expense of other stakeholders. Enron was fixated on stock price growth in order to keep the lie going and the bonuses & stock options coming. For Enron, as long as it kept the positive perception on, then its practices were not fraud. People at Enron have just lost their sense of morality and even went as far as shutting down power plants to create artificial shortages that would push prices up. It has sought out every loophole it could to profit from California, leading to the declaration of state of emergency in the state because of power shortage and unrelenting black-outs. Ken Lay, Enron’s former CEO was very verbose of his commitment to Enron's four core values – respect, integrity, communication, and excellence – but he did not walk the talk. The company’s greedy and arrogant culture has bred corruption from its own employees and even its external auditors like Arthur Andersen.
As business leaders in our organization, we should make ethics mandatory in our corporate culture. Our employees should be trained to believe that success is possible by being ethical. When staff members feel the workplace is full of ethical practices, the employee will show a sense of loyalty to the company. Enron had competitive environments and rigorous performance evaluation standards. Other than that, Enron only focused on its financial goals. If Enron gave more job securities to its employees, there might be less cheating on work. Finally, we should create a checklist of indicators that would signal that something is fishy going on in a company like the sudden resignation of the CEO or an insider stock trading in large and frequent volumes. We should be responsible for own investments even if we tap the expertise of professionals like the fund managers, brokers and advisers. We need to let these investment professionals know that we expect them to do their homework and recommend companies who are willing to disclose fully what they are doing. Some of the measures that we must ensure to be present are business ethics, executive compensation package, employee programs and social responsibility.
The top executives of Enron and its traders diverted company profits to personal accounts. They manipulated earnings, destroyed daily trading and gambled way beyond their limits. They created offshore phony books and falsified bank records in order to avoid taxes and to raise profitability. This also gave freedom to the management to move currency and hide losses. Instead of reducing risks, Enron encouraged its traders to gamble more. They even transformed energy into financial instruments that could be sold like stocks and bonds. The marked-to-market accounting treatment was the beginning of Enron’s major downfall. It has allowed Enron to book potential future profits on the day the deal has been signed which was very subjective and very left open to manipulation. Jeffrey Skilling, the manipulatively-skilled former President and CEO of Enron even created the concept of hypothetical future value, in which expected future profits were tabulated as if it was today’s. These actions were almost like gambling.
Skilling had a very Darwinian view of the world where his “survival of the fittest” principle led to the creation of an unethical working environment in Enron. He pushed for PRC or the performance review committee wherein employees were graded from 1.0 to 5.0, of which 15% of those who will get a grade of 5.0 will be fired. Intimidation was used to keep people silent. CEO Skilling accused that those who didn't understand Enron or a particular structure were not smart enough. Creating a highly competitive environment where employees did not want to appear weak or unintelligent has been the root cause of Enron's problems. Smart people stopped asking questions for fear of looking like they didn't understand the business model. No one had the external motivation to tell the truth about Enron’s real financial situation. Those individuals who did have the integrity to speak honestly about Enron’s financial losses were dismissed.
Profits were aggressively taken to extremes that integrity has become non-existent within the culture at Enron. Looking at it, no one has been more aggressive than the traders. They even traded weather and all sorts of artificial assets. It was just a pump and dump cycle of pushing stock prices up and encashment of millions of dollars at the expense of other stakeholders. Enron was fixated on stock price growth in order to keep the lie going and the bonuses & stock options coming. For Enron, as long as it kept the positive perception on, then its practices were not fraud. People at Enron have just lost their sense of morality and even went as far as shutting down power plants to create artificial shortages that would push prices up. It has sought out every loophole it could to profit from California, leading to the declaration of state of emergency in the state because of power shortage and unrelenting black-outs. Ken Lay, Enron’s former CEO was very verbose of his commitment to Enron's four core values – respect, integrity, communication, and excellence – but he did not walk the talk. The company’s greedy and arrogant culture has bred corruption from its own employees and even its external auditors like Arthur Andersen.
As business leaders in our organization, we should make ethics mandatory in our corporate culture. Our employees should be trained to believe that success is possible by being ethical. When staff members feel the workplace is full of ethical practices, the employee will show a sense of loyalty to the company. Enron had competitive environments and rigorous performance evaluation standards. Other than that, Enron only focused on its financial goals. If Enron gave more job securities to its employees, there might be less cheating on work. Finally, we should create a checklist of indicators that would signal that something is fishy going on in a company like the sudden resignation of the CEO or an insider stock trading in large and frequent volumes. We should be responsible for own investments even if we tap the expertise of professionals like the fund managers, brokers and advisers. We need to let these investment professionals know that we expect them to do their homework and recommend companies who are willing to disclose fully what they are doing. Some of the measures that we must ensure to be present are business ethics, executive compensation package, employee programs and social responsibility.