Tag Archives: energy

Learn from watching Enron: The Smartest Guys in the Room

Enron Glass BuildingApart from their shady practices the Enron executives were indeed the smartest guys in the room. Understanding how the system works to such extend to be able to influence and even fraud the stock market for so many years is a tremendous performance on its own.

  • Achieving success demands having a profound motivation. Kenneth Lay originated from a poor family and has had a strong motivation and dreamed of becoming wealthy from a very strong age.
  • Befriend people with high potential. Kenneth Lay became a close friend of the Bush family before George Bush Sr. won the elections as the USA President.
  • Hire people with visions. Kenneth Lay hired in 1990 Jeffrey Skilling as one of the company CEOs after seeing in him a great visionary with ambitious ideas of transforming Enron for the future. One of Jeffrey Skilling’s new strategies would be to use mark-to-market accounting and book profits immediately after a deal is made even if they prove profitable or not.
  • When in trouble deny any knowledge. Kenneth Lay was the kind of guy that always denied knowledge when one of his business decisions started an image crisis at Enron. This way he was blaming other company executives for the trouble and keep his image clean.
  • Create an aggressive corporate culture. At Enron every year 15% of the work force was fired following the reports of the internal Performance Review Committee. This way there was a constant pressure on the employees to perform beyond their comfort zone and sometimes in the detriment of their fellow colleagues.
  • Let people think the company is doing better than it actually is. Using mark-to-market accounting and generally presenting with every public speaking opportunity of any of the company executives untruthful facts about the company, Enron was able to let people believe they were turning a profit when they actually were losing huge amounts of money across most company sectors.
  • Tricking the stock market. Enron executives and employees at some point become more obsesses with how their stock was performing than the actual profits the company was making. This was actually lead by a PR campaign ordered in-house to help the executives do stock fraud via a pump and pump strategy.
  • If there is no crisis you can tie to then you should better create one. It was later proven that Enron had a major involvement in creating the California Energy Crisis from 2000 and 2001 by making use of connections they had in the power plants to close them for short periods of time of false claims of maintenance work. Enron people, especially Kenneth (Ken) Lay were well enough connected to push energy market deregulation in California which enabled them to trade energy there and turn large unethical financial profits in the detriment of Californian citizens.

I don’t encourage using such practices but it should not be underestimated the importance of knowing and understanding how these practices work to be able to protect against unethical business people using them.

Photo from http://www.flickr.com/photos/baldheretic/2686397596/