October 31, 2012
ENRON CASE
STUDY
By: Nevada Harris
MGNT 4165
Nevada Harris
October 31st 2012
MGNT 4165
Enron: The Smartest Guys in the Room
Enron: The Smartest Guys in the Room
Discussion Questions
Lay and Skilling
1. After watching the movie, do you agree that Jeff Skilling and Ken Lay were the “smartest guys in
the room” or would it depend on the room?
After watching the movie, I think that they were clever and knew what they were up to. Jeff
Skilling and Ken Lay had created a plan to be successful and also pocket from that success. So I
do believe that they were the “smartest guys in the room”
2. Skilling emphasized in his testimony before Congress that he was only acting in the interests of
the shareholders. Do you agree? Why or why not?
No I don’t agree because he knew what was going on, he didn’t want to stop it, and he did
nothing to stop it from becoming a huge problem. Enron has sold confidence and now this
commodity was in very short supply; but Chief Executive Jeff Skilling's claim that "it was a classic
run on the bank" is disingenuous to say the least, given that the real money that Enron did make
was earned through deliberately operating with very low reserves. So when it was all exposed,
Jeff skilling showed no respect for the shareholders because they lost a lot and he pocketed on
that.
3. Are there other people whose interests should Skilling also have been protecting? He should
have protected Anthony Fastow in this situation because Fastow had no wrong doings in this
situation and thus set the stage for everything to come to light. Thus Anthony Fastow had to
face hard time.
4. Ken Lay is said to have “wrapped himself in the cloak of moral rectitude.” Do you know other
people who adopt this image? Name an example. In your view, does this kind of behavior merit
more or less trust among such people? Why or why not?
I can use Gov. Romany as an example only because he sees himself as this “saint”. He says he
help this family and he help this business, so with this type of behavior it would be less trust
because you can see he is probably up to something and he knows it.
Deregulation
5. What message does the movie deliver regarding regulation versus “free markets”? Do you think
this message is appropriate? That government was the problem in this situation. With
deregulation, government had little power to do anything in this situation and didn’t even make
an attempt to do anything. Keep in mind, Ken Lay had George W. Bush in his back pocket when
Bush became president in 2000. So he could do whatever he wanted to do and not worried
about the government on him
Enron’s culture
6. One of the people interviewed in the movie states that there existed a “high school mythology”
at Enron. What did she mean by that? Was that good or bad for Enron and its stakeholders?
That Enron was the “high school bully” and if you wanted to survive in this market, you must
trade with Enron. It was good for Enron because they were making money off this. It was bas for
the stakeholders because they were the ones who were losing their money in the process.
7. According to the movie, Enron emphasized a “rank and yank” model of employee evaluation.
Explain the model and discuss whether this is a reasonable approach for a successful
organization. Basically Enron had an evaluation scale of 1 to 5, with 5 being the lowest. Thus if
you had a 5, you were immediately terminated. I disagree with this model because it does not
set up various training methods nor it helps those who had low ranking on their evaluations
perform better.
Accounting
8. According to the movie, what was Jeff Skilling’s rationale for the use of the company’s unique
application of mark to market accounting? Was Enron’s application of the mark-to-market
method appropriate? How did the earnings reported under this approach compare to the
company’s cash flows? It was basically making a huge profit with no respect to the bottom-line
and thus was able to set up different fake accounts to store these profits for themselves.
9. How did Enron unethically generate profits from electricity in California?
After their buyout with Portland General Electrics and with deregulation, Enron basically had
control of California. Basically Enron traders made money off random blackouts with various
power plant companies and with the high prices that came afterwards. It was making the people
pay more and not thinking about the people at heart.
10. After watching the movie, whose behavior was the worst – Ken Lay, Jeff Skilling, or Andy
Fastow? Who received the harshest punishment?
I think Jeff Skilling had the worst behavior because he showed no respect for his actions nor was
acting in the best interest of the shareholders at heart. He repeatedly said that he had no
knowledge of anyone’s doings and continues to maintain his innocence. I think he had received
the harshest punishment but it rightfully deserving of his sentenced.
11. How did Enron’s executives use Arthur Andersen, Vinson and Elkins, and Wall Street as a
defense for their actions? Note that, of these organizations, only Arthur Andersen was put out
of business in the post-Enron period. Why was the accounting firm held to an apparently higher
standard? Is this appropriate? Why or why not?
They basically used them as an escaped way for them to receive lesser punishment but in all
honesty, it didn’t work. Arthur Andersen’s accounting firm seemed to have completely control
of Enron’s books and thus knew what was going on. It is not appropriate because of it could
have saved his firm if he could’ve report this activity but choose not to because he was maybe
promised a huge bonus in the long run
12. At Enron's top levels, executives knew of their wrongdoing, but everyone passed the buck.
Other than changing business laws, how can we influence the "bottom line" mentality of
corporations that puts fast profits ahead of ethics and basic honesty? By channeling their
employees to help satisfy the “bottom line” instead of just making profit alone. Most
employees who have stock within the company can help improve the “bottom line” and
corporations can come up with incentives for those employees who help improve the market
value of the company.
13. Among the overabundance of villains and people who looked the other way are a few heroes:
Sherron Watkins, the Enron vice president and whistle-blower who repeatedly tried to steer
her company in the right direction; an Enron trader who lost his job when he questioned the
company's numbers; and McLean, the Fortune magazine reporter who first scrutinized the
company for the general public. Does this give you hope that a handful of people can make a
difference? What tools or policies can ensure that more employees speak out against work
violations?
It does because it showed that most executives do have not only the employees’ best interest
at heart, but the shareholders as well. It showed that there were some executives who
advised them of their wrong doing and was thinking in the best interest of the company. I
think there can be policy that can be put in place that can protect the employees and help
save their jobs.
14. Why didn’t Arthur Andersen provide adequate assurance?
I think mainly because the firm was too involved with this. They were intimately involved in
the creation of the partnerships used to dress the financial statements. Technically, they did
not violate the accounting rules. They also hid behind the regulations that do not require
consolidation of SPEs with outside ownership of 3%. Their focus appears to be on
dependability in a lawsuit rather than the overriding principles. Clearly, the firm was aware of
the problems and risk involved with Enron.
15. Is this a movie about one bad apple and its egregious practices? Or is Enron an example of
corporate culture at large?
I think it was just a corporate culture at large but a few high ranked officials wanted to take
an advantage of the company thus costing a lot of employees their jobs and even the officials
had to do serious jail time and payback all of their money. It showed that there were a few
officials who was focus more on pocketing profits for themselves than helping improved the
business.