Enron Quotes

In my world, people are always plotting. You have no idea of all the crimes people in business commit every day. Like it was nothing. Or there’s a set of special rules for them. Remember when Bush made that whole speech about ‘corporate ethics’ last year? What a fraud. You think stuff like Enron or WorldCom is an aberration? It’s only the tip. Business is a religion. Probably the only one practiced all over the world.

Seed catalogs are responsible for more unfulfilled fantasies than Enron and Playboy combined.

Greed is a snarling monster with a set of razor-sharp teeth on both sides of its head. It devours not only those from whom it takes, but also those who eagerly receive its plunder.

Never, ever do the easy wrong instead of the harder right.

The tale of Enron is a story of human weakness, of hubris and greed and rampant self-delusion; of ambition run amok; of a grand experiment in the deregulated world; of a business model that didn’t work; and of smart people who believed their next gamble would cover their last disaster—and who couldn’t admit they were wrong.

Say you have a dog, but you need to create a duck on the financial statements. Fortunately, there are specific accounting rules for what constitutes a duck: yellow feet, white covering, orange beak. So you take the dog and paint its feet yellow and its fur white and you paste an orange plastic beak on its nose, and then you say to your accountants, ‘This is a duck! Don’t you agree that it’s a duck?’ And the accountants say, ‘Yes, according to the rules, this is a duck.’ Everybody knows that it’s a dog, not a duck, but that doesn’t matter, because you’ve met the rules for calling it a duck.

McKinsey partners tend to be designers of ditches, not diggers of ditches. When it comes to executing their lofty theories, well, consultants lean toward leaving those messy realities to the companies themselves.

I love this book. When other U.S. reporters were licking Ken Lay's loafers, Leopold went for Enron's thieving throat. Leopold is a journalist who insists on real investigative reporting–inside documents, inside sources, hard knife-in-the-gut evidence–detective-style reporting that is just about illegal in the U.S.A. Bravo and my personal Pulitzer to Jason Leopold. Every journalist in America should read this, then quit or riot.

The ideology of change for its own sake is a recipe for disaster in the wrong hands. Fortune magazine named Enron the most innovative company in America from 1996 to 2001, before the energy giant’s shady accounting practices came to light.

Back in those less complicated times, there were lots of industries that operated more or less by rote: the old banker’s motto, for instance, was “3-6-3”: take money in at 3 percent, lend it out at 6 percent, and be on the golf course by 3 P.M.

Every coach, every executive, every leader: They all know right from wrong. Even those Enron guys. When someone uncovers a scandal in their company, I don't think they can say, "I didn't know that was going on." They're just saying they're too dumb to do their job! And if they really are too dumb, then why are they getting paid millions of dollars to do it? They know what's going on.

The Union is what needs defending this year. Government of Enron and by Halliburton and for the Southern Baptists is not the same as what Lincoln spoke of. This gang of Republicans has humbugged us to death on terrorism and tax cuts for the comfy and school prayer and flag burning and claimed the right to know what books we read and to dump their sewage upstream from the rest of us and clear-cut the forests and gut the IRS and promote the corporate takeover of the public airwaves and to hell with anybody who opposes them.

Enron followed the unwise practice of paying bonuses based on forecasted profits, not actual cash flows, a system that posed a problem remarkably similar to the R&D issues Gluck and his colleagues had solved at Northern Electric years earlier. In short: You can forecast anything. Delivering actual results is a different story. The emphasis on forecasts also neutralized Enron’s so-called risk-management group, which became a shrinking violet in the face of ever more outrageous estimates.

Capitalism, so called, is when free people accumulate capital of their own free will for use on freely determined projects. The fact of the matter is that most of these projects flop. Donald Trump, for example. Every property he touches seems to go to hell. “Fat Cat” would be the wrong epithet for Trump. If someone other than paroled former Enron accountants were keeping his books, he’d probably be shown to have a net worth less than that of your twenty-pound tabby who just shredded the drapes. What

He once gave a speech advising anyone who wanted to complete a power project to “get all the lawyers in one room, then shoot ’em—in the mouth, because it’s impossible to miss.

Conspiracy of Fools, a book about the Enron scandal.

Enron would keep its unearned windfall, generated solely because David Duncan didn't know what he was doing.

If Enron and Walmart got drunk in Vegas and had an evil corporate love child, Fiendish would be their rebellious teenage son.” ~Kate

There have been some complaints, Vince, that you're not helping people to do transactions. Instead, you're spending all your time acting like cops. We don't need cops, Vince.

more money than the crooks at Enron and less taste than a drunk after a bottle of tequila

The longer someone ignores an email before finally responding, the more relative social power that person has. Map these response times across an entire organization and you get a remarkably accurate chart of the actual social standing. The boss leaves emails unanswered for hours or days; those lower down respond within minutes. There’s an algorithm for this, a data mining method called “automated social hierarchy detection,” developed at Columbia University.8 When applied to the archive of email traffic at Enron Corporation before it folded, the method correctly identified the roles of top-level managers and their subordinates just by how long it took them to answer a given person’s emails. Intelligence agencies have been applying the same metric to suspected terrorist gangs, piecing together the chain of influence to spot the central figures.

Enron was becoming a virtual cult of creativity, often placing swagger over substance. New ideas were celebrated for their newness, for their potential; tried and true businesses like the pipelines were almost derided.

It’s easy to imagine a young person asking his parents if he should go to work for a startup and being told, “Don’t. It’s too risky. Get a job in a nice, safe company that will be around a long time—like Lehman Brothers, Arthur Andersen, or Enron.

When a company (e.g. Enron) is calling for more environmental regulation, we need to look very carefully at what they might stand to gain from it… I don’t believe that there is some kind of grand conspiracy to promote scare stories about environmental crisis. I do believe that companies, the media, and politicians benefit from those stories. This confluence of interests goes a long way to explaining why the conversation surrounding climate change has become so detached from scientific reality.

In 2001 came the announcement that shocked the corporate world. Enron—the corporate poster child, the company of the future—had gone belly-up. What happened? How did such spectacular promise turn into such a spectacular disaster? Was it incompetence? Was it corruption? It was mindset.

A year earlier, no company had been accorded more faith than Enron; by late November, none was trusted less. And so, a gasping gurgle, a desperate SOS: Enron, the emblem of free markets, the champion of deregulation, reached into its depleted treasury and forked over $100,000 to each of the major political parties' campaign war chests. Then, it shuttered its online trading unit - its erstwhile gem. On November 28, Standard & Poor's downgraded Enron to junk-bond level - which triggered provisions in Enron's debt requiring it to immediately repay billions of its obligations. This it could not do. Its stock was seventy cents and falling, and, now, no gatekeepers and no credit remained. Accordingly, in the first week of December, Enron, the archetype of shareholder value, availed itself of the time-honored protection for those who have lost their credit: bankruptcy.

Isn't there a flaw in the logic of that phrase - speak truth to power? It assumes that power doesn't know the truth. But power knows the truth just as well, if not better, than the powerless know the truth. Enron knows what it's doing. We don't have to tell it what it's doing. We have to tell other people what Enron is doing. Similarly, the people who are building the dams know what they're doing. The contractors know how much they're stealing. The bureaucrats know how much they're getting in bribes. Power knows the truth. There isn't any doubt about that. It is really about telling the story. Good fiction is the truest thing that ever there was. Facts are not necessarily the only truths. Facts can be fiddled with by economists and bankers. There are other kinds of truth. It's about telling the story. As a writer, that's the best thing I can do. It's not just about digging up facts.

We all have a stake in the truth. Society functions based on an assumption that people will abide by their word - that truth prevails over mendacity. For the most part, it does. If it didn't, relationships would have a short shelf life, commerce would cease, and trust between parents and children would be destroyed. All of us depend on honesty, because when truth is lacking we suffer, and society suffers. When Adolf Hitler lied to Neville Chamberlain, there was not peace in our time, and over fifty million people paid the price with their lives. When Richard Nixon lied to the nation, it destroyed the respect many had for the office of the president. When Enron executives lied to their employees, thousands of lives were ruined overnight. We count on our government and commercial institutions to be honest and truthful. We need and expect our friends and family to be truthful. Truth is essential for all relations be they personal, professional, or civic.

Kaminski plunged ahead. "I am not going to sign off on anything related to the Raptors," he said. "And I don't care if I'm fired for it." Buy raised a hand. "Whoa, wait a minute, I don't think you'll be fired," he replied quickly. "Now that Skilling's gone, we have a different mantra in Enron." He looked Kaminski in the eye. "We're expected to be honest", he said. p.525

The after-the-fact rationalizations were strikingly similar to the mind-set that produced the Enron disaster in the first place. The arguments were narrow and rules-based, legalistic in the hairsplitting sense of the word. Some were even arguably true—in the way that Enron itself defined truth. The larger message was that the wealth and power enjoyed by those at the top of the heap in corporate America demand no sense of broader responsibility. To accept those arguments is to embrace the notion that ethical behavior requires nothing more than avoiding the explicitly illegal, that refusing to see the bad things happening in front of you makes you innocent, and that telling the truth is the same thing as making sure that no one can prove you lied. Take

If our democracy worked as it should, we would elect wise women and men who made laws for the good of the people and enforced those laws. That, though, is not the way things work. Greedy, power–mad billionaires spend money so that politicians such as George W. Bush can buy elections. Corrupt corporations such as Enron defraud old ladies and commit crimes. And they get away with it. They get away with it because most of us are so afraid of losing the security of our nice, normal lives that we are not willing to risk anything about those lives. We are either afraid to fight or we don’t know how. Or we believe that bad things won’t happen to us. And so, in the end, too many people lose their lives anyway. In Nazi Germany, millions of men who acquiesced to Hitler’s murderous rise to power wound up marching into Russia’s icy wasteland—into the Soviet Army’s machine guns and cannon—to themselves be murdered. In America after 9–11, trusting teenagers who had joined the National Guard found themselves sent to Iraq on extended and additional tours. Our enemy killed many of them because we, citizens of the richest country in the world, did not provide them with body armor. Grieving mothers protested the wasting of their sons’ lives. Nadia McCaffrey defied Bush’s shameful ban on the filming of U.S. soldiers’ coffins returning home from Iraq. She knew, as we all did, that this tyrannical dictum of Bush dishonored our soldiers’ sacrifice. And so she invited the press to the Sacramento International Airport to photograph her son’s flag–draped coffin. Again, I am not comparing George W. Bush to Adolph Hitler, nor America to Germany’s Third Reich. What I do believe is that each of us has the duty to keep the Bushes of the world from becoming anything like Hitler—and to keep America from invading other countries with no just cause. We will never, though, be able to stop corrupt politicians and corporations from doing criminal things until we stop surrendering our power to them. The more we fear to oppose them—the more we want to retreat into the supposed safety of our nice gated communities or downtown lofts—the more powerful people will conspire to ruin our prosperity and wreck our lives.

Pat Riley, the famous coach and manager who led the Los Angeles Lakers and Miami Heat to multiple championships, says that great teams tend to follow a trajectory. When they start—before they have won—a team is innocent. If the conditions are right, they come together, they watch out for each other and work together toward their collective goal. This stage, he calls the “Innocent Climb.” After a team starts to win and media attention begins, the simple bonds that joined the individuals together begin to fray. Players calculate their own importance. Chests swell. Frustrations emerge. Egos appear. The Innocent Climb, Pat Riley says, is almost always followed by the “Disease of Me.” It can “strike any winning team in any year and at any moment,” and does with alarming regularity. It’s Shaq and Kobe, unable to play together. It’s Jordan punching Steve Kerr, Horace Grant, and Will Perdue—his own team members. He punched people on his own team! It’s Enron employees plunging California into darkness for personal profit. It’s leaks to the media from a disgruntled executive hoping to scuttle a project he dislikes. It’s negging and every other intimidation tactic.

Life as an Enron employee was good. Prestwood’s annual salary rose steadily to sixty-five thousand dollars, with additional retirement benefits paid in Enron stock. When Houston Natural and Internorth had merged, all of Prestwood’s investments were automatically converted to Enron stock. He continued to set aside money in the company’s retirement fund, buying even more stock. Internally, the company relentlessly promoted employee stock ownership. Newsletters touted Enron’s growth as “simply stunning,” and Lay, at company events, urged employees to buy more stock. To Prestwood, it didn’t seem like a problem that his future was tied directly to Enron’s. Enron had committed to him, and he was showing his gratitude. “To me, this is the American way, loyalty to your employer,” he says. Prestwood was loyal to the bitter end. When he retired in 2000, he had accumulated 13,500 shares of Enron stock, worth $1.3 million at their peak. Then, at age sixty-eight, Prestwood suddenly lost his entire Enron nest egg. He now survives on a previous employer’s pension of $521 a month and a Social Security check of $1,294. “There aint no such thing as a dream anymore,” he says. He lives on a three-acre farm north of Houston willed to him as a baby in 1938 after his mother died. “I hadn’t planned much for the retirement. Wanted to go fishing, hunting. I was gonna travel a little.

Anyone want to help me start PAPA, Parents for Alternatives to Punishment Association? (There is already a group in England called ‘EPPOCH’ for end physical punishment of children.) In Kohn’s other great book Beyond Discipline: From Compliance to Community, he explains how all punishments, even the sneaky, repackaged, “nice” punishments called logical or natural consequences, destroy any respectful, loving relationship between adult and child and impede the process of ethical development. (Need I mention Enron, Martha Stewart, the Iraqi Abu Ghraib prisoner abuse scandal or certain car repairmen?) Any type of coercion, whether it is the seduction of rewards or the humiliation of punishment, creates a tear in the fabric of relational connection between adults and children. Then adults become simply dispensers of goodies and authoritarian dispensers of controlling punishments. The atmosphere of fear and scarcity grows as the sense of connectedness that fosters true and generous cooperation, giving from the heart, withers. Using punishments and rewards is like drinking salt water. It does create a short-term relief, but long-term it makes matters worse. This desert of emotional connectedness is fertile ground for acting-out to get attention. Punishment is a use of force, in the negative sense of that word, not an expression of true power or strength. David R. Hawkins, M.D., Ph.D. author of the book Power v. Force writes “force is the universal substitute for truth. The need to control others stems from lack of power, just as vanity stems from lack of self-esteem. Punishment is a form of violence, an ineffective substitute for power. Sadly though parents are afraid not to hit and punish their children for fear they will turn out to be bank robbers. But the truth may well be the opposite. Research shows that virtually all felony offenders were harshly punished as children. Besides children learn thru modeling. Punishment models the tactic of deliberately creating pain for another to get something you want to happen. Punishment does not teach children to care about how their actions might create pain for another, it teaches them it is ok to create pain for another if you have the power to get away with it. Basically might makes right. Punishment gets children to focus on themselves and what is happening to them instead of developing empathy for how their behavior affects another. Creating

IT—especially with its role so greatly enlarged by the arrival of the Internet—has changed not only how we work and conduct business, but also how we (and our customers) play, how we consume, and how we educate our next generations. And yet the IT phenomenon, so evident in the expenditures of every organization, has not yet achieved management attention equal to other areas, such as finance, marketing, operations, and human resources. In far too many companies, IT remains a black box that business managers rarely try to see inside. When business managers do engage in IT discussions, often they bring little expertise to bear. Few feel apologetic about their IT inadequacies. But the time is coming when “I’m not an IT person” will be no more adequate as a manager’s defense in the aftermath of a major corporate problem than Jeff Skilling’s now notorious “I’m not an accountant”—that CEOs effort to explain his failure to foresee or prevent Enron’s spectacular implosion.

Sometimes wrong, but never in doubt.

Enron. One: The firm endorsed Enron’s asset-light strategy. In a 1997 edition of the Quarterly, consultants wrote that “Enron was not distinctive at building and operating power stations, but it didn’t matter; these skills could be contracted out. Rather, it was good at negotiating contracts, financing, and government guarantee—precisely the skills that distinguished successful players.” Two: The firm endorsed Enron’s “loose-tight” culture. Or, more precisely, McKinsey endorsed Enron’s use of a term that came straight out of In Search of Excellence. In a 1998 Quarterly, the consultants peripherally praised Enron’s culture of “[allowing executives] to make decisions without seeking constant approval from above; a clear link between daily activities and business results (even if not a P&L); something new to work on as often as possible.” Three: The firm endorsed Enron’s use of off–balance-sheet financing. In that same 1997 Quarterly, the consultants wrote that “the deployment of off–balance-sheet funds using institutional investment money fostered [Enron’s] securitization skills and granted it access to capital at below the hurdle rates of major oil companies.” McKinsey heavyweight Lowell Bryan—godfather of the firm’s financial institutions practice—put it another way: “Securitization’s potential is great because it removes capital and balance sheets as constraints on growth.” Four: The firm endorsed Enron’s approach to “atomization.” In a 2001 Quarterly, the consultants wrote: “Enron has built a reputation as one of the world’s most innovative companies by attacking and atomizing traditional industry structures—first in natural gas and later in such diverse businesses as electric power, Internet bandwidth, and pulp and paper. In each case, Enron focused on the business sliver of intermediation while avoiding the incumbency problems created by a large asset base and vertical integration.

When I returned to Enron Europe in the London office, I still wanted to go to conferences the way I did out of Houston. My new boss said, "Do you think anyone would want to talk to you if you weren't working for us?

Then you’re either naïve or you’re not paying attention. You don’t remember that vice chairman of Enron who was just about to testify before Congress, about to name names in the biggest corporate scandal ever, but before he could get on a plane to Washington, he was found shot to death in his car? ‘Suicide,’ they called it, of course. Then a couple of months later, a consultant for Arthur Andersen whose big client was—you guessed it, Enron—was found shot in the head in a forest in Colorado? And then a banker with the Royal Bank of Scotland who was about to testify against his colleagues in guess what case—that’s right, Enron—was found dead in the woods outside London. Another apparent suicide.

The abolition occurred just as it became clear that much of the wealth that had been seemingly created in the Roaring Nineties was nothing more than a phantasm, that much of the wealth was “stolen” property, acquired through misleading accounting and tax scams, in an economy where corporate governance had failed, and failed badly. But for the lucky few who had cashed in, there was the basis to found a new set of dynasties. At least the railroad barons of the nineteenth century, who used political influence to attain their riches, left behind a legacy of railroads, of hard capital, which bound the country together and energized its growth. What was the legacy of so many of the dot-com millionaires and billionaires, the executives of Enron, Global Crossing, WorldCom, and Adelphi, other than the horror stories which would regale future generations?

Figuring out whether a deal was worth doing was nothing if not an exercise in calculating risk: did the size of the potential return justify the risk of all the things that could go wrong? That’s a question that every executive at every company has to be willing to tackle. A company that lacked the

A lot of things went wrong in the nineties, and the footprints of the banks can be found at the scene of one suspicious deed after another. Investment banks are supposed to provide information that leads to a better allocation of resources. Instead, all too often, they trafficked in distorted or inaccurate information, and participated in schemes that helped others distort the information they provided and enriched others at shareholders’ expense. The offenses of Enron and WorldCom—and of Citigroup and Merrill Lynch—put most acts of political crookedness to shame. The typical corrupt government official pockets a measly few thousand dollars—at most, a few million. The scale of theft achieved by the ransacking of Enron, WorldCom, and other corporations in the nineties was in the billions of dollars—greater than the GDP of some nations.

lot. In addition to the behaviour that caused the crisis, major US and European banks have been caught assisting corporate fraud by Enron and others, laundering money for drug cartels and the Iranian military, aiding tax evasion, hiding the assets of corrupt dictators, colluding in order to fix prices, and committing many forms of financial fraud. The evidence is now overwhelming that over the last thirty years, the US financial sector has become a rogue industry.

Take “Respect, Integrity, Communication and Excellence,” which was Enron’s motto. If execs at Enron had decided to replace those concepts with something different—perhaps Greed, Greed, Lust for Money, and Greed—it might have drawn a few chuckles but otherwise there would have been no impact. On the other hand, one of Google’s stated values has always been to “Focus on the User.” If we changed that, perhaps by putting the needs of advertisers or publishing partners first, our inboxes would be flooded, and outraged engineers would take over the weekly, company-wide TGIF meeting (which is hosted by Larry and Sergey, and where employees are welcome to—and often do—voice their disagreement with company decisions). Employees always have a choice, so belie your values at your own risk.

In the weeks and months after Immelt left GE in 2017, a parade of negative stories and embarrassing disclosures revealed major problems that sent the company’s stock into a long decline. Conversations about what happened inevitably shifted to blame, and Immelt was the obvious target. He had spent sixteen years at the top and, regardless of what Welch had left for him, he’d had plenty of time to fix it. But there was plenty of blame to go around. Perhaps most of it should be placed on the board of directors, the independent group that oversees the CEO. Board members claimed to have been unaware of problems and to have gotten bad guidance from external advisers, and they said they didn’t understand how the company went from good to bad seemingly overnight. Some directors had no experience in GE’s business lines, others had trouble staying awake during meetings, and many stumbled away from GE’s collapse wondering, How could we have known? It had been their job to know, however, and their job to ask the hard questions that weren’t fully answered, or were never asked at all. It was their job to oversee management, and it was their job to protect investors from fatal hubris. Still, the path ultimately leads back to Immelt. As chairman, he was also responsible for steering the board. There is no doubt that GE’s size and complexity, which grew exponentially under Immelt, made it difficult or even impossible to manage. The CEO of a company is responsible for its daily functions and for managing its operations, however vast. The chairman guides the board, which is responsible for overseeing management and the CEO. When the board chair and CEO are the same person, the top executive is essentially his own boss. It can only get worse with time if a chairman remakes the board to his own liking. Simply put, it is terrible governance to give so much power to a single person and so little voice to shareholders. That is one reason this governance structure has been slowly fading from corporate America since the Enron era.

For example, executives and HR departments should not offer the vice president of Enron a string of government jobs in the public-private international development and infrastructure industries after his company’s debacle.

The difference between Cisco Systems CEO John Chambers and Enron’s Kenneth Lay is far easier to recognize with the benefit of 20/20 hindsight.

The Values: Fill in a statement describing the company’s values. Make sure they are noncontroversial. Dow’s values are “Integrity, Respect for People, and Protecting Our Planet.” Enron’s were “Respect, Integrity, Communication and Excellence.

Life’s too short to wallow in the weeds! There are thousands of stocks to choose from. Some investors do build a career around digging into the minutiae in the footnotes. For banking and insurance analysts, it’s mandatory. But as a portfolio manager who didn’t own Enron stock, I didn’t need it. Disclosure is a wonderful thing, but I’ve never had good luck with complex corporate structures that require massive information statements. Not infrequently, companies with complex corporate structures or opaque disclosures are trying to hide something.

I don’t like shorts promoting their position.

Part of the problem was that EES hadn’t done much more than guess at the energy loads its customers would require. Part of it was those faulty price curves, with their excessively optimistic assumptions.

unmistakable message to boardrooms across the country: You can’t lie to shareholders. You can’t put yourself in front of your employees’ interests. No matter how rich and powerful you are, you have to play by the rules.

My bank, Wells Fargo, pitched me on its investment services, and I decided to trust it with half of my investible funds. Trust is probably the wrong term because I only let Wells Fargo have half; I half trusted it. I did my own investing with the other half of my money. The experts at Wells Fargo helpfully invested my money in Enron, WorldCom, and some other names that have become synonymous with losing money. Clearly my investment professionals did not have access to better information than I had. I withdrew my money from their management and have done my own thing since then, mostly in broad-market, unmanaged funds. (That has worked out better.) Folderoo:

Lawyers have us trained to believe nothing is airtight, any agreement can be broken, and that life is one big loophole. A handshake ends up as meaningless as an Enron audit. Heaven forbid the law be the law. Today, the law is whatever the client wants it to be. Today, we can sue anybody over anything. We can ruin a reputation with a simple allegation, trumpeting the canard worldwide on the Internet in seconds.

designer of ditches, not a digger of ditches,

This struck me as a pretty basic misunderstanding of the way capitalism works—as does, in fact, the whole notion of a nurturing “ecosystem” dedicated to “mentoring” and “incubating” other people’s precious startups. (It’s a basic misunderstanding of ecology, too, but we will let that pass.) Other than the chance to make some money, why would a capitalist participate in such a thing? If startups really were to encourage other startups, they would be contributing pretty directly to their own competition—and robust competition is precisely what today’s thinking business person wants to avoid. The winning quality today is monopoly, not competition. But this is not a literature given to subtlety or introspection. As the tech writer Evgeny Morozov points out in To Save Everything, Click Here, the cult of innovation holds every info-age novelty to be “inherently good in itself, regardless of its social or political consequences.” Sure enough, as far as I have been able to determine, few of the people who write or talk about innovation even acknowledge the possibility that innovations might be harmful instead of noble and productive. And yet recent history is littered with exactly such stuff: Innovations that allow companies to spy on us. Innovations that allow terrorist groups to recruit online. Innovations that allowed Enron to do all the fine things it used to do. Come to think of it, the whole economic debacle of the last ten years owes its existence to the financial innovations of the Nineties and the Aughts—the credit default swaps, or the algorithms companies used to hand out mortgage loans—innovations that were celebrated in their day in the same mindlessly positive way we celebrate tech today.

Bethany McLean and Peter Elkind’s business classic The Smartest Guys in the Room on Enron

Enron, Halliburton, and WorldCom.

Seven months later, Enron filed for bankruptcy. The golden goose of corporate capitalism collapsed amid charges of ‘greed, bribery, corruption, deceit, parasitism, speculation, insider trading, scams, nepotism, tax avoidance, environmental destruction, human rights abuses, exploitation, theft of workers’ entitlements, job losses, use of state machinery against workers and Indigenous peoples, cosy relationships with government, and monopoly manipulation of prices and markets’.

Indeed, the big brokerage firms tend to avoid standing out from the crowd, downgrading a stock only after its problems have become obvious. In October 2001, fifteen of the seventeen analysts following Enron still had a “buy” or “strong buy” recommendation on the stock even though it had already lost 50 percent of its value in the midst of the company’s accounting scandal.

Fear changed everyone and everything, and yet, as always, life went on. Hour by hour, day by day, while politicians and military personnel were looking for bombs and terrorists, and while the Justice Department was tearing down Enron's papery walls, families went on with their ordinary lives.

Skilling developed a performance review system for Enron that consisted of grading employees annually and summarily firing the bottom 15 percent. In other words, no matter what your absolute level of performance, if you were weak, relative to others, you got fired. Inside Enron, this practice was known as “rank-and-yank.” Skilling considered it one of the most important strategies his company had. But ultimately, it may have contributed to a work environment that rewarded deception and discouraged integrity.

Because they could come up with plausible rationales for why a given structure was technically valid, they believe they were on the right side of the law. They were, in fact, proud of what they were doing. In their view, they were doing what every other company was doing, except they were doing it better and smarter, because they were Enron, where everything was done better and smarter. But while people at Enron were smart about bending the rules, they were not smart at all about understanding where all that bending was taking them.

Everything was perception; nothing was real.

Those who want to blame all of Enron's woes on the greedy former CFO claim that Enron was a good business brought down by Andy Fastow. But that was never true. Ultimately, Enron was a bad business that was, for a time, propped up by Andy Fastow.

It was an astonishing comment on the mores of American life at the dawn of a new century. In the aftermath of one of the largest corporate scandals in American history, precious few were willing to concede that they had done anything wrong.... To accept these arguments is to embrace the notion that ethical behavior requires nothing more than avoiding the explicitly illegal, that refusing to see the bad things happening in front of you makes you innocent, and that telling the truth is the same thing as making sure no one can prove you lied.

Which offers up the problem: no company can prosper over the long term if every employee is a free agent, motivated solely by greed, no matter how smart he is. No company can function if it only hires brilliant MBAs - and sets them against each other. There is a reason companies value team players, just as there's a reason that people who get along with others tend to do well in corporate life. The reason is simple: you can't build a company on brilliance alone. You need people who can come up with ideas, and you also need people who can implement those ideas and are well compensated for doing so.

had

Muckleroy began to hear from friends in the business, as he later recalled, “that we were huge on the wrong side of a trade.” But so unconcerned were the Enron brass that at the company’s mid-August board meeting, the Enron board increased Borget’s trading limits by 50 percent. One skeptical Enron executive who attended that meeting returned to his office and told a colleague: “The Enron board believes in alchemy.

Muckleroy quickly discovered that things were far worse than anyone realized. Enron Oil was short over 84 million barrels. The position was so huge that it amounted to roughly three months’ output of the gigantic North Sea oil field off the coast of England. If Enron were forced to cover its position, it would have been on the hook for well over $1 billion. “Less than worthless” was exactly the right description: when you added $1 billion-plus to Enron’s $4 billion in debt, the company’s total debts outstripped its net worth. And, of course, given how strapped the company was for cash, there was simply no way it could cover its trading losses without filing for bankruptcy. But Enron got lucky.

Lay was also at the Come to Jesus meeting. He made a few tepid remarks about how the company needed to embrace gas deregulation. But mostly this was Rich Kinder’s show. “Enough of this!” he declared, and then he lit into the group. He was tired of the chaos, tired of people going behind his back to Lay, tired of the constant complaints and excuses about why the company wasn’t doing better. And it was going to stop. The company’s problems were like alligators, he growled. “There are alligators in the swamp,” he said. “We’re going to get in that fucking swamp, and we’re going to kick out all the fucking alligators, one by one, and we’re going to kill them, one by one.” And on that note, the meeting ended.

Skilling also had a tendency to oversimplify, and he largely disregarded—indeed, he had an active distaste for—the messy details involved in executing a plan. What thrilled Skilling, always, was the intellectual purity of an idea, not the translation of that idea into reality. “Jeff Skilling is a designer of ditches, not a digger of ditches,” an Enron executive said years later. He was often too slow—even unwilling—to recognize when the reality didn’t match the theory. Over time his arrogance hardened, and he became so sure that he was the smartest guy in the room that anyone who disagreed with him was summarily dismissed as just not bright enough to “get it.

Enron Oil was supposed to have strict controls to prevent the possibility of large losses; its open position in the market was never supposed to exceed 8 million barrels, and if losses reached $4 million, the traders were required to liquidate the position. Yet when the Arthur Andersen auditors had tried to check whether Enron Oil was complying with the policy, they later reported, they discovered that Borget and Mastroeni had made a practice of “destroying daily position reports.” Still, Andersen refused to opine on the legality of what had come to be known internally as Borget and Mastroeni’s “unusual transactions,” claiming that it was beyond their professional competence.

The Enron executives were terrified of offending Borget. Before the accountants went to Valhalla to interview Borget, Seidl sent the head oil trader a memo detailing Andersen’s concerns so that he would be better prepared to address them. After one conference call among Arthur Andersen, Seidl, and Borget, Seidl sent a telex to Borget. “Lou,” it read. “Thank you for your perservance [sic]. [Y]ou understand your business better than anyone alive. Your answers to Arthur Andersen were clear, straightforward, and rock solid—superb. I have complete confidence in your business judgment and ability and your personal integrity.” Then he added, “Please keep making us millions….

Securitizations exploded, with everything from lotto winnings to proceeds from tobacco lawsuits being turned into securities that could be sold to the investing public.

On January 30, 1992, the SEC told Enron that it would not object to the use of mark-to-market accounting beginning that year. On getting the word, Skilling was ecstatic. He quickly gathered his troops in the conference room of the thirty-first floor, where his group had its offices. To celebrate, he brought in champagne: champagne to toast an accounting change!

Here is a stark example. If you have time, I suggest watching the YouTube video of the January 2000 presentation by the president of Enron, Jeffrey Skilling, and his senior management on the launch of Enron Broadband.2 I dare you not to be impressed. The guys are poised, confident, and, at least to my eyes, extremely competent. It is hard to find fault with their strategy or vision, and their execution plan for broadband services seems spot on. However, in less than two years after this impressive presentation, Enron went bankrupt, and in 2006 Skilling was sent to prison for perpetrating a massive fraud.3 Except for a few short sellers, no professional analysts or investors could have guessed what was going on at Enron even though the management was quite open to the media and regularly gave interviews. I know what you are thinking. Am I building my entire case on an outlier like Enron? Let’s look at it another way. I assume you have read the interviews of many CEOs or company presidents. Did any mention that they don’t care for the customer, that they have stopped innovating, or that they hire people who have been rejected by other companies? Have you ever heard a company leader disparage their products or services or admit that their competition is doing a better job or that they are sick and tired of company politics?

You will rarely—if ever—learn anything insightful from what the management says. They always say what they have been taught to say, which at best is useless and at worst is harmful, because, as with Enron, their words are persuasive. In my experience, when someone says, “This is a great management team,” what they are actually saying is, “These guys talk so well!” The “great management team” filter thus fails the first criterion of measurability (being easily measurable).

They believed that the market was the ultimate judge of their work and their worth. The market created a true meritocracy: you either made money because you made good trading decisions or you lost money because you made bad ones. Enron traders didn't concern themselves with ethics or morality apart from the unyielding judgment of the markets. Maximizing profit was not inconsistent with doing good, they believed, but an inherent part of it, and the judge of good and bad was the immediate consequence of a split-second trade. The highest compliment a trader could pay a colleague was to call him intellectually pure. The worst insult was to accuse someone of making a deal that wasn't economic.

My intentions were good. I was trying to do what was best for Enron, but the way we as a company defined success was incorrect. We defined success by reported earnings and the stock price. We were not defining it as increasing economic value,

Life as an Enron employee was good. Prestwood’s annual salary rose steadily to sixty-five thousand dollars, with additional retirement benefits paid in Enron stock. When Houston Natural and Internorth had merged, all of Prestwood’s investments were automatically converted to Enron stock. He continued to set aside money in the company’s retirement fund, buying even more stock. Internally, the company relentlessly promoted employee stock ownership. Newsletters touted Enron’s growth as “simply stunning,” and Lay, at company events, urged employees to buy more stock. To Prestwood, it didn’t seem like a problem that his future was tied directly to Enron’s. Enron had committed to him, and he was showing his gratitude. “To me, this is the American way, loyalty to your employer,” he says. Prestwood was loyal to the bitter end. When he retired in 2000, he had accumulated 13,500 shares of Enron stock, worth $1.3 million at their peak. Then, at age sixty-eight, Prestwood suddenly lost his entire Enron nest egg. He now survives on a previous employer’s pension of $521 a month and a Social Security check of $1,294. “There aint no such thing as a dream anymore,” he says. He lives on a three-acre farm north of Houston willed to him as a baby in 1938 after his mother died. “I hadn’t planned much for the retirement. Wanted to go fishing, hunting. I was gonna travel a little.” Now he’ll sell his family’s land. Has to, he says. He is still paying off his mortgage.7 In some respects, Prestwood’s case is not unusual. Often people do not diversify at all, and sometimes employees invest a lot of their money in their employer’s stock. Amazing but true: five million Americans have more than 60 percent of their retirement savings in company stock.8 This concentration is risky on two counts. First, a single security is much riskier than the portfolios offered by mutual funds. Second, as employees of Enron and WorldCom discovered the hard way, workers risk losing both their jobs and the bulk of their retirement savings all at once.

While the media looked for a few evil geniuses to blame, the real cause was amoral bizspeak. Corporate common sense regarding how to run a business had shifted over the years from long-term reinvestment and worker obligations to short-term returns. The ex-McKinsey men of Enron were cleverer, but not different from those at Andersen. While McKinsey or Andersen might have helped lead any one company astray, the real culprit was more insidious: the erosion of honest investment.

Like other primates, humans can be described either as highly cooperative animals that need to work hard to keep selfish and aggressive urges under control or as highly competitive animals that nevertheless have the ability to get along and engage in give-and-take. This is what makes socially positive tendencies so interesting: They play out against a backdrop of competition. I rate humans among the most aggressive of primates but also believe that we’re masters at connecting and that social ties constrain competition. In other words, we are by no means obligatorily aggressive. It’s all a matter of balance: Pure, unconditional trust and cooperation are naïve and detrimental, whereas unconstrained greed can only lead to the sort of dog-eat-dog world that Skilling advocated at Enron until it collapsed under its own mean-spirited weight.

All those greentech investments in China you’ve heard about? All that talk about China being the world’s green leader? Most of those installed solar panels and wind turbines are there only due to the same overinvested, highly leveraged, expansion-at-all-costs development model that has made the entire Chinese economy a grotesque approximation of Enron in nation-state form. Greentech is no solution to China’s energy problems

For many years, one of America’s biggest corporations proudly exhibited the following list of values in the lobby of its headquarters: “Integrity. Communication. Respect. Excellence.” The company? Enron. It boasted about having lofty values right up to the moment it came crashing down in one of history’s biggest cases of corporate fraud and corruption.

What are your feelings from Bush to Obama? Besides being responsible for the death of half a million people, I feel like Bush dealt a huge economic and social blow to the USA, one from which we may never fully recover. He directly flushed 3 trillion dollars down the toilet on hopeless, pointlessly destructive wars in Afghanistan and Iraq …and they’re not even over! For years to come, we’ll be paying costs for all the injured veterans (over 50,000) and destabilizing three countries, because you have to look at the impact that the Afghan war has on Pakistan. Bush expanded the use of torture, and created a whole new layer of government bureaucracy (the “Department of Homeland Security”) to spy on Americans. He created Indefinite Detention (at Guantanamo and other US military bases) and expanded the use of executive-ordered assassinations using the new drone technology. On economic issues, his administration allowed corporations to run things and regulate themselves. The agency that was supposed to regulate oil drilling had lobbyist-paid prostitutes sleeping with employees while oil industry lobbyists basically ran the agency. Energy companies like Enron, and the country’s investment banks were deregulated at the end of the Clinton administration and Bush allowed them to run wild. Above all, he was incompetent and appointed some really stupid people to important positions at every level of government. Certainly, Obama has been involved in many of these same activities. A few he’s increased, such as the use of drone assassinations, but most of them he has at least tried to scale back. At the beginning of his first term, he tried to close the Guantanamo prison and have trials for many of the detainees in the United States but conservatives (including many Democrats) stirred up public resistance and blocked this from happening. He tried to get some kind of universal healthcare because over 50 million Americans don’t have health insurance. This is one of the leading causes of personal bankruptcies and foreclosures because someone gets sick in a family, loses their job, loses their health insurance (because American employers are source of most people’s healthcare) and they can’t pay their health bills or their mortgage. Or they use up all their money caring for a sick family member. So many people in the US wanted health insurance reform or single-payer, universal health care similar to what you have in the UK. Members of Obama’s own party (The Democrats) joined with Republicans to narrowly block “The public option” but they managed to pass a half-assed but not-unsubstantial reform of health insurance that would prevent insurers from denying you coverage when you’re sick or have a “preexisting condition.” The minute it was signed into law, Republicans sued in the courts (all the way to the supreme court) and fought, tooth and nail to block its implementation. Same thing with gun control, even as we’re one of the most violent industrial countries in the world. (Among industrial countries, our murder rate is second only to Russia). Obama has managed to withdraw troops from Iraq and Afghanistan over Republican opposition but, literally, everything he tries to do, they blast it in the media and fight it in Congress. So, while I have a lot of criticisms of Obama, he is many orders of magnitude less awful than Bush and many of the positive things he’s tried to do have been blocked. That said, the Democratic and Republican parties agree on more things than they disagree. Both signed off on the Afghan and Iraq wars. Both signed off on deregulation of banks, of derivatives, of mortgage regulations and of the energy and telecom business …and we’ve been living with the consequences ever since. I’m guessing it’s the same thing with Labor and Conservatives in the UK. Labor or Democrats will SAY they stand for certain “progressive” things but they end up supporting the same old crap... (2014 interview with iamhiphop)

Enron tenía una contabilidad mark-to-market que abusó para contabilizar ganancias futuras (no realizadas) en sus estados de resultados actuales. Sus ganancias comerciales no realizadas representaban un poco más de la mitad de los mil cuatrocientos millones de dólares reportados como ingresos antes de impuestos para 2000.17 Además, no contabilizar posibles obligaciones financieras para el futuro hizo que en los estados financieros no aparecieran hasta cuatro mil millones de dólares en posibles pérdidas de Enron.

Since Enron, it has become clear that pension plans are in trouble.

Wall Street that Enron was an aggressive user of structured finance devices such as special purpose entities (that’s the SPE in Hecker’s song), securitizations, and off-balance-sheet partnerships. “If there was a whiz-bang structure somebody had, the place to sell it was down there on Smith Street, because they were buying,” says one banker. Andy Fastow’s team, says another banker, were “black belts in structured finance.” “It started out as pure, clear, legitimate deals,” says a former senior Enron executive. “And each deal gets a little bit messier and messier. We started out just taking one hit of cocaine, and the next thing you know, we’re importing the stuff from Colombia.

But “if it’s destroyed in the course of the normal policy and litigation is filed the next day, that’s great, you know, because we’ve followed our own policy, and whatever there was that might have been of interest to somebody is gone and irretrievable.” Two

she suggested deleting senior Andersen partners from the circulation list for Enron e-mails because it “increases their likelihood of being a witness.” Duncan,

The load was so great that Andersen summoned a shredding truck from a local disposal company called Shred-It. (The company’s motto: “Your secrets are safe with us.”)

I didn’t set out to commit a crime. I certainly didn’t set out to hurt anyone. When I was working at Enron, you know, I was kind of a hero, because I helped the company make its numbers every quarter. And I thought I was doing a good thing. I thought I was smart... but I wasn’t. I wake up every morning, and I take out my prison ID card, which I have with me here today. And it makes certain that I remember all the people. I remember that I harmed so many people in what I did. It encourages me to try to do the little things that I can to make amends for what I did.

Going to prison is terrible. You’re never comfortable. All the talk about ‘Club Fed’ is garbage… You’re surrounded by very violent people, very unstable people. Prisons work hard to make you uncomfortable. But that’s not what’s bad about going to prison. What’s bad about going to prison is that you’re separated from your family.

In his book How the Mind Works, the linguist Steven Pinker gives a wonderful example of this. Pinker tells a simple three-sentence story: “Janie heard the jingling of the ice cream truck. She ran upstairs to get her piggy bank. She shook it till some money came out.”2 By themselves these three sentences don’t tell you much. But because of your patterns, without consciously thinking about it, you construct a meaning for the story that makes sense. You probably have some idea of how old Janie is. It’s unlikely that you picture her as someone in her thirties; you probably assume she’s 9 or 10. It’s unlikely you think bills came out when she shook her piggy bank; you probably heard coins. And you certainly don’t assume that she wanted the money to invest in Enron. None of this meaning is contained in the original three sentences, but because of your patterns, you impose meaning—your meaning—on the story.

THE PROBLEMS OF dishonesty, by the way, don’t apply just to individuals. In recent years we have seen business in general succumb to a lower standard of honesty. I’m not talking about big acts of dishonesty, like those perpetrated by Enron and Worldcom. I mean the small acts of dishonesty that are similar to swiping Cokes out of the refrigerator. There are companies out there, in other words, that aren’t stealing cash off our plates, so to speak, but are stealing things one step removed from cash. There are plenty of examples. Recently, one of my friends, who had carefully saved up his frequent-flyer miles for a vacation, went to the airline who issued all these miles. He was told that all the dates he wanted were blacked out. In other words, although he had saved up 25,000 frequent-flyer miles, he couldn’t use them (and he tried many dates). But, the representative said, if he wanted to use 50,000 miles, there might be some seats. She checked. Sure, there were seats everywhere. To be sure, there was probably some small print in the frequently-flyer brochure explaining that this was OK. But to my friend, the 25,000 miles he had earned represented a lot of money. Let’s say it was $ 450. Would this airline have mugged him for that amount of cash? Would the airline have swiped it from his bank account? No. But because it was one step removed, the airline stole it from him in the form of requiring 25,000 additional miles.

If you also live in this city I love, then you definitely know the effort required to lighten up and the futility thereof. You can’t ignore the mentally ill people shouting between our beautiful towers of glass. You’ve tasted the sugarcoating of words like Generously sponsored by Enron and Hundred-year floodplain, and you spit it out. You’ve heard the promises that things will get better, and yet you’re stocked up on canned goods, bottled water, and ammo. You know happy endings don’t come easy, and a World Series win doesn’t ease the pain of decades of football heartbreak.

When Enron’s fraudulent practices were exposed

John Wooden, the legendary basketball coach, says you aren’t a failure until you start to blame. What he means is that you can still be in the process of learning from your mistakes until you deny them. When Enron, the energy giant, failed—toppled by a culture of arrogance—whose fault was it? Not mine, insisted Jeffrey Skilling, the CEO and resident genius. It was the world’s fault. The world did not appreciate what Enron was trying to do. What about the Justice Department’s investigation into massive corporate deception? A “witch hunt.

Skilling was the one Enron executive who did not take the Fifth Amendment before Congress, though his lawyer advised him to do so.