Enron Reaction Paper

“The Smartest Guys in the Room” Reaction

1) Do you think better IT controls would have made a difference?

I do not believe that better IT controls would have changed the outcome of the Enron collapse in 2002. The culture at Enron was such that earning a profit was the number one priority above all else. Kenneth Lay founded Enron in 1985 after forging relationships with future presidents George H. W. Bush and George W. Bush. Just two years later, Enron became embroiled in scandal after two traders began betting on the oil markets, resulting in consistent and suspiciously high profits for the company. From the beginning, it is evident by these examples that Enron was a company that was content with malpractice so long as the effect on the bottom line was positive.

Even Enron’s legal practices promoted performance at the expense of integrity. For example, Enron annually would fire the bottom 15 percent, who were deemed unsuitable for the company’s objectives. This created a brutal work environment, whereby employees were pressured to do anything necessary to meet performance expectations. Another example is from the use of mark-to-market accounting., which allowed the company to book potential profits on certain projects immediately after the deals were signed, whether or not those profits turned out to be successful. Therefore, Enron could subjectively give the appearance of being a profitable company even if it wasn’t.

It is true that better IT controls could have prevented the abuse of mark-to-market accounting, perhaps by reversing entries if projects turned out to be unsuccessful, but that would be missing the point. The point is that the overall culture of Enron was that of fraud. From the founder to the lower-level manager and everyone in between, fraud was a typical solution to meeting performance expectations. Jeff Skilling and Andrew Fastow, among the other executives were so creative in their efforts to deceive and so intelligent that I don’t...