Assignment 1: Labour and Technology – Enron Scandal and SAIL job

roles in the future

An assignment submitted in partial fulfilment of the requirements for the Degree of

Master of Arts in Globalisation and Labour (2018-2020)

Centre for Labour Studies

School of Management and Labour Studies

Tata Institute of Social Sciences, Mumbai

2020

Guided By: Submitted By:

Dr. Johnson Minz Faisal Khan (M2018GL004)

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1 - Enron Scandal

Enron was once the seventh largest corporation in America they revolutionized trading and the
energy market there were far smarter than their competitors and their business was intricate and
too complex for the average person to understand except in reality it was all a big scam filled with
lies, fraud and political manipulation. Enron was the biggest scam in US history the fallout from the
scam was monumental billions of dollars stolen thousands of lost jobs dozens of convictions one
suicide and the unveiling of a very public display of corporate greed that shined directly into the
heart of corporate America this is the story of how one company took ten years to grow to sixty
billion dollars in value and then in less than a month go bankrupt this is the story of Enron

Enron began as an energy supply company mainly dealing with natural gas eventually the company
moved on to trading making energy deals in power and then later moving on to broadband and even
trading the whether there were Wall Street's darling the company that could never lose and a stock
price kept growing year-on-year the company was also well-connected politically for example Enron
was the single biggest contributor to the George W Bush campaign Bush even called Kenneth Lay
the founder of Enron Kenny boy. He became a prominent figure in the deregulation of the energy
sector the PhD graduate spent his time as a financial analyst in the Pentagon before climbing the
ranks and becoming close friends with George Bush Senior. Ken Lay would even send the Enron
corporate jet to take George senior and his wife to their son’s inauguration as these favours did not
go unreturned.

The first red flag the founder of the company Kenneth lay the something was wrong within the
company came during the Valhalla scandal of 1987 to oil traders working for Enron gambled
enormous Lee on the company's behalf shifting money to fake accounts with names such as my ass
or my ass worried auditors told Ken that they found the two traitors moving money into their own
accounts manipulating earnings and gambling on trades beyond their capacity but instead of firing
the two road traders Ken made no changes didn't seem to matter what they were doing as long as
they were making the company money and Ken even sent them a letter saying please keep making
us Millions. Later the two were convicted of fraud.

Ken Lay acted shocked saying that he was not aware of their reckless gambling and theft but as
revealed later he actually encouraged it one of the convicted traders was sent to jail for a year and

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this gave Ken Lay a big problem one of his main money-makers was behind bars and he needed
someone new to bring in cash.

1.1 - Major money-maker CEO Hired, Change of direction of Enron

Enter Jeffrey Skilling. Skilling Enron's new CEO was Ken’s biggest asset when he arrived at Enron he
started moving the company in a new direction skilling wanted to turn Enron from a gas supply
company into a stock market for natural gas he also introduced the company to “mark to market
accounting”, an idea that would allow the company to fraudulently reap billions so mark-to-market
accounting simply allows the company to write down profits in their books on the day that the deal
was signed this meant that if Enron signed a deal worth 50 million dollars over the next 10 years
they could write 50 million dollars in their books that day despite not receiving a penny it didn't
even matter if the deal fell through effectively this meant that the company was worth more on
paper than it had actually earned the deals were often subjective they could be worth whatever
Enron thought they were worth. When the Security and Exchange Commission approved the
accounting trick of mark-to-market for Enron the office celebrated they knew that this was the key
to making billions meanwhile Skilling was known for his Darwinian philosophy survival of the fittest
his favourite book “The Selfish Gene” describes how greed and competition motivate human nature.
At Enron skilling wanted to unlock these instincts in his employees, one way he did this was grading
all employees on a scale of one to five with one being the best and five being the worst the thing
was 10% of all employees had to be greater to fire and when you were graded a five you were fired
this created the competition that skilling was looking for people began to work 18 hours a day and
were ruthless in their efforts to earn the company as much money as possible.

With the advent of Internet and online trading of stocks and shares boosting the movement of
shares, along with Enron’s business model built on mark-to-market accounting, the stocks’ value
tripled in the space of two years. People with savings playing the stock market game knew that as
long as the company met or exceeded endless expectations the stock price will keep rising and
somehow, they always met or exceeded those expectations.

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Investigation agencies claim that the analysts, the very people who were supposed to stop the
corruption could not comprehend the complexity of Skilling’s business model and the charisma of
skilling made analysts have trust in the model. Any analyst who that didn't comply were fired from
the company.

1.2 - Beginning of the end, cracks start to appear:

A major event which is often seen as the beginning of the end is the interview by Fortune magazine’s
reporter Bethany McLean. McLean found out that Enron Chief Financial Officer (CFO) Andy Fastow
was unable to answer simple question like “How exactly does Enron make its money?” They sat in
the office for three hours poring over documents at the end as others had left the room and he
turned to the reporter and said I don't care what you write about the company just don't make us
look bad.

Andy made Enron debts disappear by moving them to shell companies so that on paper it was
profitable. He even set up his own fraudulent firm just to buy Iranian assets and this fraudulent firm
called LJM would later convince ninety-six bankers to invest in the scam and raised forty five million
dollars. Several bankers would go to jail for fraudulent Related Party Transactions (RPTs) initiated
by Enron.

Enron merged with Pacific Gas & Electric which gave them access to the Californian grid once this
was achieved strange things began to happen in the newly deregulated electricity market of
California. Blackouts became common California had almost double of the electricity supply than
the demand, which raised questions. It was later found that Enron traders were manipulating the
market as they moved electricity out of state to increase demand and when the price got high
enough they would move it back in and they even called power plants and asked them to make
excuses to shut down for a few hours increasing the price. Traders had energy maps and the control
to move the energy they knew exactly how to squeeze every last dollar from the people of California
while the state faced blackouts, estimated to cost 30 billion dollars loss to the California state. The
National Government under the leadership of George Bush Jr., good friend of Ken Lay, failed to put
a stop to it saying that it was his administration's belief that intervention would not solve anything.

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The Federal Energy Regulation Commission also didn't step in until the Senate forced them to the
and even the chairman of the Commission was personally recommended by Kenneth Lay.

1.3 - Skilling resignation and full-blown corporate scandal unveiled:

In 2001, the CEO Skilling suddenly resigned as perhaps he figured he could leave the company years
before it imploded then he could say well it was fine when he left. Kenneth Lay took over the CEO
role and one day later Sharon Watkins, who worked under the company CFO Andrew foster sent a
letter to Kenneth Lay detailing the staggering amount of corruption and fraud that she'd found
within the company. The Wall Street Journal would write a piece about some of Andy's dealings and
soon the SEC would launch an informal inquiry at this point which made investors lose confidence
in the company.

Lay tried to bring calm and reassurance to investors and employees while he was addressing the
company's issue in a speech to employees while simultaneously several blocks away an accounting
firm was busy shredding documents, about one ton of paper.

Company went from that healthy appearance of one of the leading innovators to total bankruptcy.
For the thousands of people who held Enron stock the market was frozen at the $32 mark and when
it reopened it was $9 a share. Enron executives had a fire sale of all of their stock in the months
leading up to the bankruptcy.

Andy Fastow, the former CFO pleaded guilty to conspiracy and he ratted out and cut himself a deal
to testify against other Enron executives. He was sentenced to 10 years but only served 6 and paid
23 million $ in fines. Accounting firm Arthur Andersen, the one that shredded one ton of paper was
convicted of obstructing justice. America's oldest accounting firm collapsed due to the loss of
reputation 29,000 people lost their jobs

Ken Lay earned 300 million $ from Enron he was found guilty of 10 counts of securities fraud and
was facing 45 years in prison but died of a heart attack a month before his sentencing. 20,000 people
at Enron lost their jobs and medical insurance with an average severance pay of only $4,500 whereas
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executives were paid 55 million dollars during the bankruptcy and cashed a further 774 million in
the year before the collapse.

Skilling, the mastermind behind Enron was convicted of 19 counts of security and wire fraud he was
sentenced to 24 years and 180 million in fines while in jail his parents and his son passed away while
he was in jail. However, he only served 12 years of his 24-year sentence and was released in early
2019.

Skilling is hoping that he can get a second chance he appears to be applying a return to the energy
sector only two months after his prison release in early 2019. Skilling entered as a manager of a new
company which he founded few years ago. Lau Pi, former Enron executive who escaped the scandal
with USD 250 million is reported to be helping skilling regain connections and funding according to
The Wall Street Journal Skilling has been holding meetings from former Enron executives in relation
to starting a new venture. But apart from people's perception there's technically nothing stopping
him the SEC has banned Skilling from being an officer if any public company so as long as this venture
stays private, he can do whatever he wants.

Enron was one of the biggest scams in the US history resulting in billions of dollars in losses for
average people, tens of thousands of lost jobs and executives reaping and billions and the main
culprit Skilling is out of jail and free to start again. Enron's motto was “Ask why?”. During his
astronomical rise it seemed that no one bothered to ask why how or where the money was coming
from and now with skilling out of jail and trying to re-enter the business world maybe once again,
we should ask why

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1.4 - Conclusion:

1 a) - Decision makers and people impacted:

Kenneth Lay, Founder of Enron and Later CEO

Jeffery Skilling, CEO and promoter of revolutionary money generating schemes

Andy Fastow, CFO and accused of money laundering through shell companies abroad. Later
becomes government witness.

Bethany McLean, reporter of Fortune Magazine who brought this to public attention.

Shareholders (Public and Executive), Bankers, Auditors and employees of Enron affected the most
through Billions of Dollars of loss. Arthur Anderson auditors shut down because of scandal.

1 b) Systemic incentives:

￮ Mark-to-Market accounting method to generate revenue and reducing liabilities.

￮ Increase in dealing of intangible assets to hide losses and show them as profit.
￮ Executive Board able to own and operate shell companies which were used to generate
Related Party Transactions (RPTs) which were actually money rotated by buying and selling
same assets at highly inflated prices.
￮ Power and market share in energy sector.
￮ Political backing up to a certain point to bend rules in Enron’s favour.

1 c) Probable remedies to avoid such scandals:

￮ Accounting firm should not be consultant and auditor to the same company.

￮ Disclosures, accountability and transparency should be mandatory.

￮ Strong whistle-blower policy.

￮ More power to stakeholders and shareholders.

￮ Monitoring of intangible assests like future contracts etc need to be robust

￮ Corporate profiling of firms and potential red flags should be addressed in initial stages

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2: Job roles in SAIL and their susceptibility to automation:

The following job roles have been analysed as per their susceptibility to automation. The higher the
percentage value, the higher is the chance of job to be automated. The jobs are arranged in
increasing order of their susceptibility, i.e. the jobs at the beginning are least susceptible and those
at the end being most susceptible to automation.

Boiler and Pressure Vessel Inspector

￮ 13 %

￮ Technical Review can be automated through software and AI

￮ Operations procedure review from ERP management software.

￮ Loading and unloading processes as well as schedules can be automated.

￮ Productivity monitoring/ Data collection through analytical frameworks.

Occupational Health and Safety Manager

￮ 14 %

￮ Environmental monitoring can be implemented through sensors and monitors.

￮ Opinion surveys can be automated by sending mails or survey questionnaires.

￮ Operational monitoring methods can be automatically developed.

￮ Impact assessment can be done by analysing data generated through primary research.

Fitter-Welder

￮ 55 %

￮ Repair Schedules can be fed into robotic systems

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 ￮ Hazardous environment promotes use of robots for this job

￮ Blueprint review can be modified and fed into robots through project mapping.

￮ Equipment and specification assessment can be automated.

￮ Inspection and maintenance schedules can be automatically linked with inventory.

Furnace Operator

￮ 68 %

￮ Product specification of furnaces can be managed through monitors rather than mechanical
equipment.

￮ Parts and assemblies’ installations are susceptible to automation.

￮ Flow of production regulation can be regulated through ERP software.

￮ Work order reviews and operations are generated automatically as per job roles.

Structural Steel Trade Workers

￮ 76%
￮ Monitoring equipment and recording cycle data prone to AI data storage.

￮ Maintenance schedule generated and implemented as per periodic cycles.

￮ Setup installation automated by linking various mechanical and electrical equipment

together.

￮ Equipment repair detected automatically through X-Rays and heat sensitivity senors.

￮ Quality checks through automated inspecting lasers will increase effectiveness.

￮ Blueprint review and layout of plant as per automated efficient models.

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2.1: Future of job roles in SAIL:

As per the trends observed in the Steel Industry in India, it is safe to say that SAIL is a long way from
implementing automation by investing into capital intensive equipment and technology. However,
it must be noted that despite investment in new technology being low, SAIL is saving costs through
not releasing vacancies generated by retired workers and thus replacing permanent labour by
contractual labour. As contract labour are not counted in workforce, it creates a prima-facie image
of huge productivity increase in SAIL as evident from the figure below. Thus, it is clear that
contractualisation of workforce and not technology or automation is a threat to workers in SAIL.

Source: SAIL Annual Report 2018-19

During the year 2018-19, SAIL invested into newer technology to increase productivity, but this was
not related to automation. At Bhilai Steel Plant, hot trial of Steel Melting Shop-III (SMS-III) facilities
viz. Converter-2, Billet Casters 1 & 2, Billet cum Bloom Caster and RH Degasser has been undertaken.
Further, processing of Rail Heat at SMS-III through RH Degasser and Billet-cum-Bloom Caster route
has also been achieved during the year. The integrated process route under Modernisation &
Expansion Plan is in operation, stabilization & ramp-up. Hon'ble Prime Minister of India has
dedicated the Modernized and Expanded Bhilai Steel Plant to the Nation on 14th June, 2018. A
capital expenditure of Rs 4,303 crore has been incurred during Financial Year 2018-19 and capex
planned for the Financial Year 2019-20 is Rs 4,000 crore.

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3: References

￮ (41) Enron—The Biggest Fraud in History—YouTube. (n.d.). Retrieved February 18, 2020,
from https://www.youtube.com/watch?v=e5qC1YGRMKI

￮ Could a robot do your job? Find out now. (2017, August 8). [Text]. ABC News.
https://www.abc.net.au/news/2017-08-08/could-a-robot-do-your-job-artificial-
intelligence/8782174

￮ Enron Chiefs Guilty of Fraud and Conspiracy—The New York Times. (n.d.). Retrieved
February 19, 2020, from https://www.nytimes.com/2006/05/25/business/25cnd-
enron.html

￮ How the Enron Scandal Could Have Been Avoided Essay—283 Words. (n.d.). StudyMode.
Retrieved February 19, 2020, from https://www.studymode.com/essays/how-the-enron-
scandal-could-have-47909379.html

￮ Ijbm, E. (2009). International Journal of Business and Management, Vol. 3, No. 10, October
2008. International Journal of Business and Management, 3(10), p0.
https://doi.org/10.5539/ijbm.v3n10p0

￮ Interview with Sherron Watkins. (n.d.). Retrieved February 18, 2020, from
https://www.fraud-magazine.com/article.aspx?id=583

￮ SAIL annual report 2018-19.

￮ Segal, T. (n.d.). Enron Scandal: The Fall of a Wall Street Darling. Investopedia. Retrieved
February 19, 2020, from https://www.investopedia.com/updates/enron-scandal-summary/

￮ The Enron Scandal. (n.d.). Retrieved February 19, 2020, from

http://large.stanford.edu/courses/2018/ph240/smith1/

￮ The Rise and Fall of Enron. (2002, April 1). Journal of Accountancy.
https://www.journalofaccountancy.com/issues/2002/apr/theriseandfallofenron.html

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