Enron's Impact on Society

Courtesy of  Sara Robertson (Flickr)

"The collapse of Enron was devastating to tens of thousands of people and shook the public's confidence in corporate America."

-Robert Mueller (FBI)


To state it simply, Enron was a massive company with a massive stake in many world markets. To really get a firm understanding on just how big Enron was, you could look at modern day Google. Google started off as a small start-up company with a failing search engine behind AOL and Yahoo. Not long after it was created, it became the largest search engine in the world with ten times more functions. Google didn't stop there. Currently it has made a stake in phones (Droid), video (YouTube), TV, email, cars, and much more. Where does it stop? Google owns the very blog that I am writing on right now.  Now, it's stock price is well over an astounding $600 a share. Now as you look at Enron, instead of being on the world wide web, it started off as a gas company that craved expansion. It became greedy, too big for itself and held too much debt. This was the root for one of the most impactful collapses of a company in history.




The Rise of Enron

Enron was created in 1985 by Kenneth Lay by the merging of Houston Natural Gas and Internorth. In its earlier years Ken Lay and Enron had made a lot of money off of their natural gas pipeline system. But they wanted more revenue, just like any other business. So they expanded their natural gas company into an energy company. In 1995, it held one-fifth of the gas market in North America. To add, Ken Lay recruited Jeffrey Skilling to his booming company in the early '90s, who then became president in 2001. By the turn of the century, Enron (like Google) had a stake in electrical power, coal, steel, fiber-optic cables, and more, in addition to its original gas business. It even expanded its gas trading business on the internet, with EnronOnline. Enron also joined the fun internationally. During the '90s, its stock rose 311%. Its stock was priced at close to $90. Everything looked great, but on the inside these investments caught up to them. On the books, Enron's earning were 70 times less than what was being portrayed to the public. In actuality, the reported number was their projected numbers, not what they had. That was a big problem.


Bankruptcy and Scandal


Andrew Fastow, the Chief Financial Officer, was the antagonist for the fall of Enron. He was responsible for making his company have the ability to diverge their financial failures away from potential investors. The way that he did this was by physically keeping debt off the books by moving it to special partnership companies. The time of truth came about in October 2001. Enron's value was reported to be $1.2 billion less than it had publicly portrayed. The company that relied on making money from capital and the stock market, wasn't credible anymore. Enron down from a high of $90 per share, was now around a penny. Shareholders in total lost tens of billions. The people at the top of Enron, including Fastow, Lay, Skilling and their families and relatives made billions off of stock options from their involvement with the company. With nothing left to do, Enron filed for Chapter 11 bankruptcy in-order to, "preserve and enhance its liquidity, stabilize operations and restore relationships with business partners". It was clear that Enron, though corrupt, was desperate to regain its credit. Sometime during this period, an S.E.C. investigation was launched to see the validity of Enron's bankruptcy. Ken Lay quit as C.E.O. along with the other top Enron officials. Lay died soon after, but the other officials were still alive and well enough to be tried federally. Skilling was charged with 24 years in jail for fraud, conspiracy, and more. Fastow, ironically was sentenced for six years in jail, only because he cooperated with the government. As Enron continued to make an outrageous amount of money suspiciously,  nobody seemed to ask any questions. But when the questions started to come, there was no possible way for survival. Ultimately, Enron defrauded its investors, and only made money by manipulating people with intent to do so.

Ken Lay, Former CEO and Founder

How did the Enron Scandal impact and affect society?


At the time, the fall of Enron was the largest the world had ever seen. This resulted in a financial shock wave across the United States economy. The results that came out of the Enron scandal seem endless, but here a couple of the main ones:


1) Economic Setbacks

• From 2000-2002, publicly traded companies lost value of around $7 trillion 
• Investors of Enron lost $60 billion in market value
• Partners of Enron lost billions of dollars
• Led to fall of many other high-profile companies charged with fraud

2) Employees

• More than 20,000 employees lost their jobs
• $2 billion lost in pension money
• 401(k) loss
• retirees and long-standing employees lost all of their money
• many families lost of all their money

3) Change in the Auditing World

• Arthur Andersen
• company who audited Enron, charged of obstruction of justice after fall of Enron for shredding documents of Enron's financial woes 
• surrendered CPA licenses, lost billions of dollars and jobs
• The following year, publicly traded companies spent an average of $2.3 million more on auditing than previously

Courtesy of Flickr

3a) Sarbanes-Oxley (Sarbox)

• SEC created new law called the Sarbanes-Oxley law requiring a company's executives to certify financial information, set up audits of internal accounting by the SEC 
• largest modification of  securities law since Great Depression
• creation of Public Company Accounting Oversight Board

This fall occurred because the top officials at Enron, along with giving themselves hefty stock options, mismanaged their company. Without a doubt, the business environment and stock market after this occurrence was strained. Say for example, you personally had stock in Enron, your shares one day would be worth in total, many dollars. All of the sudden in less than 24 hours, it's worth a few pennies. The criminal trial of the company equivalent to the size of Google today, Enron, changed the way companies had to be audited and managed forever. 


***Even the rich have to follow the rules.***