Smartest Guys in the Room

The Smartest Guys in the Room

“It had taken Enron 16 years to go from about 10 billion of assets to 65 billion of assets, it took them 24 days to go bankrupt.” Enron was a publically traded American energy corporation, headquartered in Houston TX, that was one of the largest natural gas and electricity companies in the world before it filed for bankruptcy in December of 2001. Formed in 1985 by the merger of Houston Natural Gas with InterNorth, Enron originally built and operated power plants and pipelines to control the transmission and distribution of natural gas. It later diversified its holdings and began trading in more products both energy and commodity related.

Run by Ken Lay, a prominent business man in the energy business, the corporate culture was instituted from the top down and employees were encouraged to do whatever necessary to “make the numbers” and grow the company. While outwardly portraying a philosophy of integrity, respect, and communication, ultimately the culture strived for success. The stock price was prominent around the office and very strict personnel performance reviews implemented to ensure only the strongest employees survived. Risks, big ideas, and finding loopholes were greatly encouraged. Executive compensation was largely tied to stock options, which further perpetuated the encouragement of finding ways to raise the stock price. Employees were encouraged to do whatever possible to get ahead and further the growth of the company. Lay, himself, continuously strode for increased visability, befriending the Bush family and becoming a significant donor to both George H. and George W. Bush’s political careers.

In 1990, CEO Ken Lay hired Jeff Skilling. Jeff implemented a Mark-to-Market accounting practice, which allowed Enron to estimate the value of a long-term contract income based on current market pricing. This practice meant that Enron could record income from projects even if the money never actually entered...