Enron was a company founded in 1985 focused In the Energy sector more specific was developed as a Natural Gas emporium, but after a few years their market expanded not only into producing and selling energy but into involving energy stocks trading among other kinds of trades. Near to its downhill run, Enron became the 7th largest corp. and had a value of 16 billion USD just a month before going to bankruptcy. How can this be achieved? How can something so robust and so rich can be so unstable? The Answer could be found within the two most important persons in the company and the common ideas they had, Kenneth Lay Founder of Enron and Jeffrey Skilling, the CEO, and how their thrive was fueled by greed.
As stated before Enron started as a company merely focused in providing energy services in the US, founded by Kenneth Lay, a man coming from a poor family who always wanted to grow improve his socioeconomic status, resulting in a profit driven with low morality business model. This could be seen since their early years when just 2 years after the founding of the company they were involved in a scandal, where two of the most profitable employees of Enron where literally gambling with the company’s money and services and privately they were enforced by Lay telling them to keep making him millions.
After washing the company’s hands from the scandal Lay decided to employ the second biggest name in the Enron Fraud or should we consider Jeffrey Skilling as the real mastermind?
Since Skilling arrived as CEO his profit driven ideas were exposed, firstly he proposed to the company to take a new approach in their accounting and business model, the “Mark to market accounting”, where they were able to write in their accounting books any deals they made, in the same day they were created, even if they didn’t concluded or evolved, rising the value of the company day by day based on promises, similar to making a 10 story building without any kind of foundations.
This “Fake it until you make it approach” wasn’t the only problem with Enron, their focus on the trading stocks made them lose their main money making activity, energy producing, they even failed by building an energy producing plant in India just to find after they finished that India wasn’t capable of buying the energy they were selling, resulting in millions wasted.
Any of this scandals would be able to bring down any company, but not Enron, after around 15 years of bad operations and scandals they were able not only to withstand all of this but they even managed to be in charge of one of the most energy hungry states of the US, California. After the merge of Pacific Gas and Electric Company, they became one of the main suppliers of California’s electricity but not having enough with everything previously done they manipulated the market demand of electricity by rerouting California’s energy out of state, causing blackouts all around the city, increasing the need of energy and the cost of it, so they could charge more their clients.
After this new scandal and the ECC investigation inquiry Skilling bailed out of the company, selling his stocks and resigning his CEO position out of the blue, forcing Kenneth Lay to take charge as the new CEO of Enron. Shortly after his stepping in Lay was informed of the whole company status, and how the value of it was inflated and unsustainable. A month after, the company that was valuated around 16 billion dollars was declared in bankruptcy leaving thousands of people unemployed, and just a few facing charges and fines, resulting in the biggest fraud in history.