Enron's Organizational Behavior Research Paper
- Length: 12 pages
- Sources: 6
- Subject: Energy
- Type: Research Paper
- Paper: #79670046
Excerpt from Research Paper :
Enron collapsed very quickly in November 2001, and its failure should have been a warning to serious dysfunctions in the entire corporate and financial system, but this did not happen. Its executives admitted that they had falsified its records going back for at least five years, although in reality they had been doing so since the 1980s. When the company filed Chapter 11 bankruptcy it laid off over 20,000 workers and at least $24 billion in pension assets, stocks and mutual funds also vanished (McLean and Elkind 2003). In addition, the Arthur Anderson accounting firm that had been complicit in covering up the fraud and embezzlement at Enron for many years, also went out of business. This catastrophe also demonstrated that Wall Street banks, stock analysts and ratings agencies had either been deceived or allowed themselves to be deceived by Enron when they continually painted a positive picture of the company and its future prospects. Later in the decade, the exact same problem would occur with the banks and investment firms that were marking 'assets' of dubious values like subprime mortgages. They also collapsed and ended up receiving trillions in dollars in bailouts from the Congress and the Federal Reserve, which was also yet another indication that Wall Street and corporate America had basically bought the government and both political parties. Enron had certainly done so with donations to politicians of both parties, and was especially close to both George Bush's, who helped the company obtain the deregulation it desired and billions in government subsidies.
The Criminality of Enron's Leadership
In Criminology Today, Gene Stephens, predicted that the Internet would make white-collar crimes like those of Enron far more common since the company found it easier to conceal bogus transactions, clients and traders using the new technologies. Advancements in copying technology, instantaneous financial transactions and rampant corruption in the U.S. all facilitated the white-collar crime epidemic (Schmalleger, 2008, p. 508). As Joseph F. Coates asserted "the crimes that have the widest negative effects- in the advanced nations will be increasingly economic and computer based," including electronic theft and fraud, manipulation and disruption of records, and tampering with security systems (Schmalleger, p. 504). Enron was a house of cards that should have collapsed years before, except that the accountants and analysts who concealed the fraud, and in fact were ordered to do so by their superiors. Its profits were all smoke and mirrors, but Wall Street promoted the company as if it had invented a new business model. None of the analysts and accountants went to prison, unlike Ken Lay, Jeff Skilling and Andrew Fasto, and they all denied any wrongdoing. Cliff Baxter, another executive who had been very close to Skilling, committed suicide after the scandal became public, although his manic depression could also have been a factor. Arthur Anderson had been lying about Enron's false accounting since 1987, when it already knew that the company was making fictional trades, setting up offshore accounts under the names of persons who did not exist and engaging in dishonest financial reporting (McLean and Elkind 2003). All of these are felonies under federal law, but at Enron they continued for years until the company finally crumbled like the pyramid scheme that it really was.
Ken Lay imagined that his close connections with the Bush family would ensure that Enron never sank, evidently not realizing that the Bushes were quite cunning and ruthless about avoiding all such awkward situations. Bush Senior had always avoided any major questions about his role at the Central Intelligence Agency, for example, or his connections with the oil industry, the Gulf State monarchs, the Iran-Contra scandal or the covert wars in Central America when he was Reagan's vice president. Lay was a Baptist minister's son, from a much lower social standing than the Bushes, and had eagerly worked for deregulation of the energy markets during the Reagan years with the goal of becoming rich and powerful (McLean and Elkind 2003). Although the aristocratic Bushes eagerly accepted his donations, they distanced themselves immediately as soon as Enron collapsed. They also denied doing the company any favors, either in Austin or Washington, and the media never seemed to pursue this angle very seriously. As the company sank, Lay and other executives cashed in over $1 billion in stocks and stock options while pretending that Enron was one of the most profitable companies in the world. To cover their fraud and corruption, they attempted to shred all the company records, which is also a crime under federal law (Enron 2005)
Jeff Skilling had been influenced by a book called The Selfish Gene, which was a defense of the Social Darwinism that had made a comeback in the 1980s and 1990s. He was a believer in the survival of the fittest and insisted that human beings were only motivated by money, which was a common view in an America governed by Ronald Reagan and the Bush family (McLean and Elkind 2003). All Enron employees had to accept this aggressive, competitive worldview or they did not remain long at the company. Skilling was also highly insecure, a former nerd who rebranded himself as a corporate executive and global adventurer and frequently proclaimed "I am Enron" (Enron 2005). Even with billions of dollars appearing and disappearing or simply going unaccounted for, Enron could make money in the great bull market of the 1980s and 1990s as long as it kept up an image of tremendous profitability and innovation, and no one checked the books too closely. Ken Lay promised that Enron's stock prices would double every year, and all the executives engaged in 'pump and dump', by which the artificially inflated the value of the stick then sold it off for their personal profit. None of the company's profits had ever been real, yet the stock values always went up, while Lay and Skilling were "fixated on the stock price" (Enron 2005). Through skilled manipulation, intimidation and bribery, they presented an image of being the 'smartest guys in the room'.
That image was based completely on lies since all the alleged profits were bogus and the massive losses were concealed by accounting tricks. Enron had huge energy projects all over the world that were actually losing money, although none of these losses were ever reported. It had lost over a billion dollars on a massive power plant in India, for example, for which the Indians had been unable to pay. It bought Portland General in Oregon in order to gain access to the newly deregulated energy market in California, and then lied about the high earnings received from this acquisition (McLean and Elkind 2003). Wall Street analysts generally believed the press releases put out by Lay and Skilling and rarely looked beneath the surface. Enron was also extremely hostile and vindictive towards the few skeptical analysts and arranged to have them fired if they did not praise the company sufficiently. For the most part, though, "never was heard a discouraging word" when it came to Enron, up to the day it went out of business (Enron 2005).
Up until the Dot.com bubble burst in 2000-01, Enron had been treated not only as a star performer but almost like a religious cult that was all-knowing, all-powerful and infallible. In 200, the company's stock had gone up by 90% and the company announced new strategies for bandwidth trading and even betting on the weather through options. As usual, its executives concealed the fact that it had lost money on these schemes by using accounting tricks like mark-to-market to conjure up 'profits' that never existed (McLean and Elkind 2003). By that time, it had concealed at least $30 billion dollars in debt in bogus companies with names like Jedi. LJM, and Raptor. As soon as a few financial analysts and journalists started asking some real questions, however, Enron simply collapsed.
Energy Policy, Lobbying and Corruption
In 2000-08, the energy and natural resource sector spent $304 million on federal elections, 72% of which went to Republican candidates. Of this $141 million came from the oil and gas industry, and overall these industries were the fifth largest contributors to elections, with finance, insurance and real estate (FIRE) always in first place. More importantly, energy and natural resource companies spent $2 billion on lobbying during the same period, and had allies in control of the Energy Task Force chaired by former Halliburton CEO Dick Cheney, as well as the key House and Senate Committees. In George W, Bush, they also had a Texas president whose family had been closely connected to the oil and gas industry for decades, and had himself been head of an independent oil company (Gevi and McNabb, 2009, p. 93). Under these highly favorable circumstances in 2005, the real question is not whether the energy industries were in control of the entire process, since they obviously were at every level, but that Democrats and environmental groups were able to obtain some tax breaks and subsidies…