How a series of lies built a corporate empire
A story, quote and lesson about speaking up
The truth was in the fine print.
The year was 2001. Enron, an American energy company, was at the peak of its success. It had been selected by Fortune as America's Most Innovative Company for 6 years in a row (1996-2001) and it appeared in Fortune’s 100 Best Companies to Work For in America in 2000. At the time, Enron was celebrated as a model company, praised for generous pensions, worker benefits, and strong management.
This all changed, however, in August of that same year when Sherron Watkins, vice president for corporate development, made a shocking discovery. The company, for several years, had knowingly been abusing several accounting loopholes, including the misuse of market-to-market accounting and special purpose entities.
Detailing her findings in a 6-page memo, Watkins personally met with then-CEO Kenneth Lay to warn him about the company's flimsy accounting practices and their possible consequences. Instead of righting the ship, Lay consulted with other company executives to try and get Watkins fired (although ultimately deciding against it to prevent possible litigation).
By mid October 2001, Enron announced that restatements to its financial statements for years 1997 to 2000 were necessary to correct accounting violations. These adjustments wound up showing in their 2001 Q3 results, where they posted a $618 million loss. Soon enough, investor confidence began to plummet (along with their stock price).
“There are no accounting issues, no trading issues, no reserve issues, no previously unknown problem issues.”
Kenneth Lay (Aug. 15, 2001), American businessman who served as Enron’s CEO during the accounting scandal.
After several investigations by the SEC, a reduction of its credit rating to junk status and a failed merger attempt with Dynergy (their main competitor), Enron was out of luck. By December 2001, the board unanimously voted to file for Chapter 11 protection.
Arthur Andersen, once a prestigious member of the Big 5 accounting firms, lost its CPA license after shredding thousands of documents and deleting emails linking the firm to the scandal. This led to the firm's collapse, leaving all 85,000 employees jobless. Key figures Kenneth Lay (replacement CEO), Jeffrey Skilling (original CEO), and Andrew Fastow (CFO) were tried and sentenced to significant jail time, though Lay died before his sentencing.
Although most of us won’t be in a position where accounting scandals are common, especially after the Sarbanes-Oxley Act (which regulates financial reporting) was introduced in 2002, we can still learn from the way Enron’s key figures acted. The Enron case, although now considered a classic study on business ethics, should show us what happens when people fail to speak up and take responsibility for their mistakes.
Ultimately, Enron’s downfall teaches us more than just the dangers of unethical behavior in business—it’s a cautionary tale about the power of integrity, transparency, and courage in the face of adversity. Whether in boardrooms or our personal lives, the choice to act responsibly can be the difference between building trust and watching everything crumble.
So now I ask you:
What can you speak up on now, in your personal or professional lives, that may prevent the problem from becoming bigger than it is?
P.S. It seems that recently the Enron website has been reactivated and a press release has been scheduled for Jan. 6, 2025. Some people say that it’s just a parody (their new Terms of Use state this plainly) while others think it may involve crypto. I guess we’ll just have to wait and see after the live announcement.
Congrats on your excellent article. Remembering an important piece of world financial history is truly important for reflecting on how we should act when encountering unethical practices. Besides integrity, transparency, and courage in the face of adversity, I consider a more powerful term: Accountability. The power of accountability encompasses all that Enron officials failed to do.
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