Mike Honeycutt
“The Smartest Guys in the Room”
1509 words
Following the formation of one of the largest and most profitable companies
the world has ever seen, Enron changed the game from its very start. Knowing the
great and powerful demand for energy and power, brilliant individuals teamed
together and created a company with a structure that was set up for enormous
financial gain.
Founder Kenneth Lay was ambitious, smart and had all the right friends in all
the right places. With a PhD in Economics, Lay pushed the philosophy of
deregulation of energy wanting to make it a free market. Lay was good friends with
soon to be President of the USA, George W Bush, who greatly played a part in
opening doors to make this philosophy, in turn realty. Deregulation pushed Ken Lay
to found Enron in 1985, with new mergers and business ready to boom, all that
needed to be done was to make the market open and subject to floating gas prices.
Once the government could not regulate and was out of the energy business all the
pieces were aligned for serious and substantial amounts of money to be made.
Lay received billions in grants from current president George Bush, and was
made Deregulations Ambassador at large. After strategically putting himself in the
perfect position to succeed Lay continued to make moves to give him more of a
strong hold. Constantly preaching and publicizing the importance of ethics and
moral rectitude Lay guided and pushed his business to be very profitable and
successful. Yet alarming flags were raised early on that would ultimately set the tone
for the future and moral compass of the company to come. The Enron oil scandal in
1987 dealt with two employees of Enron diverting company funds to their personal
accounts. With this embezzled company money, these two employees were
gambling with large amounts of money on the rise and fall of oil and gas prices.
Once this was made to CEO Lay’s attention, action was set to take. Yet instead
of firing these two and making it known to the public, it was swept under the rug.
Not only were these two not fired for committing illegal acts that could have
severely hurt or even killed the company, they were not punished because they
were making too much money. Lay allowed for them to have higher extended limits
to do what they were doing, because it was working and not only making money for
their own personal selves but more importantly making massive amounts of money
for the company.
I find all of this ironic considering Mr. Lay’s approach and important stance
to demonstrate moral ethics and integrity in parts of business. He was so far on the
opposite end of the spectrum, acting and doing whatever he could to make money.
Setting aside completely all truth and all integrity, money was put first and
foremost. Very shady considering legality was even pushed aside and left out the
window. Creating an open market, made the energy trade like the wild wild west
and nearly impossible to be fair and ethical. I think that this happens in many
corporations and professional environments, sometimes we get so caught up in
profit and projections that we forget about actual people, and how our decisions
affect those people. Mr. Lay was acting selfishly and was thinking only about himself
in making all these moves.
In order to keep making this money and continue to trade, the books needed
to be fixed or cooked to maintain an illusion of positive cash flow and profits. For
someone as smart and talented as Kenneth Lay, who prided himself on ethics and
the practice of correct ethics when conducting business, all of these acts were based
entirely on a lie backed by greed and the need to succeed. Lay publically noted on
many occasions that Enron dealt only with the upmost integrity. Yet what he was
saying to the public and what he was doing behind closed doors were polar
opposites of the spectrum. The 1987 Valhalla oil scandal is living proof of that. With
manipulated earning numbers, destroying daily trading records and gambling large
amounts of money that could destroy a company, Lay acted most ethically and with
his upmost integrity and truth he did not fire these employees or even discipline
them, yet helped them to do more to make more money for the company.
After trading went wrong, and large sums of money of over 90 million were
lost, there was nothing else to do but save the company and the only way to do that
was to manipulate the books even more than they already were. Ken Lay gave the go
ahead and later expressed to the public that he had been shocked that this amount
of money had been traded and gambled away, when in truth he had encouraged it.
These two traders had been the only source of once positive income throughout the
company, yet after the truth surfaced these two were convicted and sentenced to
discipline and jail time. Lay having his main sources of income behind bars; he
quickly needed a new outlet to foster the future of his company Enron.
Jeff Skilling with new and bright ideas signed on and with his visionary status
was sought to forever change Enron for the best. His idea did revolutionize the
industry; he wanted to trade the demand for natural energy just as if you would
trade stocks. By 1992, Enron became the largest buyer and seller of natural gas in
North and South America. Thus recreating the entire industry, something big was on
the horizon.
Skilling had a mind that was dominated by competition and instituted a
system in the workplace called the PRC (Performance Review Committee). This was
a system that rated employees performance on a scale of 1-5, roughly 10 % of
people that were ranked bad were supposed to be fired on an annual basis, being
later known as rank and yank. Creating a brutal process of evaluation and even
termination of many employees within the system. An aggressive cultural was
created and put employees in a tough situation.
This could apply to companies and their techniques and efforts to downsize.
Many companies and Enron specifically wanted to get rid of employees annually and
had a system of doing so. This creates a hostile workplace and could very much
diminish entirely employee’s trust throughout the workplace. Surely Mr. Skilling
had installed a sense of fear and he thought was motivation enough. Yet did this
establish trust with his employees? Did this help production throughout the
company? I feel that maybe temporarily this could be an effective system, but when
looking at the big picture it would be more harmful than helpful. I don’t know if the
long-term picture was taken into consideration. For Enron everything was
momentous and decisions were based on pleasing the shareholders and doing
whatever necessary to help the company grow for that quarter. The bigger picture
needs to be taken into consideration and this is the main problem with this
company. If long term ramifications were taken into the slightest consideration by
company leaders, serious illegal activity that could have the company in jeopardy
would not be made. Thousands and thousands of employees lost their 401k and
their retirement plan and pension, not to mention lost their job entirely. Their lives
were and all their work leading up to the future were taking right from underneath
them.
In my opinion Enron was a black hole of lies and had a foundation built from
rotten wood meant to keep from the start. When you back a company and thousands
of people with millions and even billions of dollars, and all of this is centralized and
founded on lies on top of lies, there are going to be some serious problems.
I feel that we can learn from many of the instances at the Enron Corporation.
Maybe it was the mistreatment of employees, maybe it was the misguided decisions
that were backed by nothing but lies and greed. Maybe it was the management style
of Mr. Lay or Mr. Skilling, the dominant one survives and to hell with the rest.
Companies such as Enron were so successful and could have continued to
remain successful if not for these issues that leave such a big wake. Have the long
term picture in mind and constantly try to make decisions that not only satisfy the
shareholders, but also are moral and ethically correct and pleasing. People mean
more than money, and when treated fairly can greatly work to your advantage.
Follow the law and practice correct and ethical business, we must learn from Enron
and not throw thousands and thousands of people in the dark, stripped of all that
they had worked for their entire lives. Think before we act, and put others first, act
in accordance to the law, and speak and act honest and true. All of which Enron
failed to do, and consequences must be paid.