Enron: The smartest Guy in the Room

I. Concise
● The merger that happened in 1985 between two companies—the
Houston Natural Gas Company and North Inc.
● Ken Lay continued to become the CEO of the combined entity.
● In 1990, Ken Lay, who was still the CEO, hired Jeff Skilling.
● Jeff Skilling was at the time one of the partners at McKinsey &
Company, which was the consulting company advising Enron.
● 1992 Jeff skilling devised a new accounting technique called mark-
to-market by which he can adjust the value of an asset on the
balance sheet from its historical cost up to the fair market value and
capture that difference as a gain or revenue, so basically, this
allowed him to look at the value of the power plant today. When
you build it and then look at its future revenue, adjust the value of
the plant based on the cash flow that it’s expected to generate,
allowing him to capture the projected revenue from that plant. This
technique was approved by the SEC in 1992. The effect of using
the mark-to-market technique has been performance in general.
Enron entered into a deal with Blockbuster to provide a video on-
demand service, and so basically, this partnership was going to
provide broadband, or the internet service behind it. What Enron
did was take the profit from the contract that they expect to make
in the future and book it as revenue, in the year 2000.
● Enron was involved in several scandals, such as manipulating the
California electricity market, creating offshore entities, and lying to
investors and employees
● Enron collapsed in 2001, after its fraud was exposed by
whistleblowers and journalists
● Enron's top executives, such as Lay, Skilling, and Fastow, were
convicted of various crimes, but some died or appealed their
sentences
II. Answer
1. The smartest guy in the room:
● Jeff Skilling was at the time one of the partners at McKinsey
& Company, which was the consulting company advising
Enron.
 ● Ken Lay, the founder and chairman who maintained a
positive image of Enron and influenced politicians and
regulators
2. Enron failed because Enron was involved in several scandals, such
as manipulating the California electricity market, creating offshore
entities, and lying to investors and employees.
3. The negative effects after Enron bankruptcy are:
● It had such a huge effect on Wall Street, a lot of people lost
their pensions and their retirement funds, and it was just like
a bad situation for many people in 2001 after Enron declared
bankruptcy.
● Has a lot of people lost their job in Enron Bankruptcy
● Maybe three thousand employees lost their jobs.
4. My suggestion to your current organisation to avoid any failure
such as the Enron are:
● Be transparent and honest about the financial situation and
performance of the organisation
● Avoid unethical and illegal practices such as accounting
fraud, insider trading, market manipulation, etc.
● Foster a culture of accountability and integrity among the
employees and leaders
● Implement effective internal controls and audits to prevent
and detect any irregularities or misconduct
● Seek external guidance and oversight from regulators,
auditors, investors, etc.
● Communicate clearly and regularly with all the stakeholders
about the goals, strategies, risks, and challenges of the
organisation
● Encourage innovation and creativity, but also evaluate the
feasibility and viability of new projects and ventures
● Reward and recognize the employees based on their merits
and contributions, not on their loyalty or compliance