{"id":5981,"date":"2022-12-16T06:45:22","date_gmt":"2022-12-16T06:45:22","guid":{"rendered":"https:\/\/crestnetwork.com\/?p=5981"},"modified":"2022-12-16T06:45:28","modified_gmt":"2022-12-16T06:45:28","slug":"whatever-happened-to-enron","status":"publish","type":"post","link":"https:\/\/crestnetwork.com\/whatever-happened-to-enron\/","title":{"rendered":"Whatever Happened to \u2026Enron?"},"content":{"rendered":"\n

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\u201cHouston, We Have a Problem\u201d<\/strong><\/p>\n\n\n\n

It is December 2022, and much of the financial world is watching the colossal collapse of a multibillion-dollar corporate company called FTX.\u00a0 Stories of investors losing billions of dollars as the result of corporate mismanagement and greed reminds me, \u201cWait\u2026we\u2019ve seen this movie before\u201d right?\u00a0 It was a different December. It was December 2001.\u00a0 And it was the collapse of the Enron Corporation.\u00a0 Enron was a U.S. energy, services and commodities company headquartered in Houston, Texas.\u00a0With a workforce of approximately 20,000 workers, Enron was the seventh largest corporation in the U.S… With revenues close to $101 billion, the company was named by Fortune as \u201cAmerica\u2019s Most Innovative Company\u201d for six successive years.<\/p>\n\n\n\n

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Enron\u2019s Collapse\u00a0\u00a0<\/strong><\/p>\n\n\n\n

In early December 2001 the Enron Corporation was a darling of Wall Street investors, with $63.4 billion in assets.  By the end of December, Enron went bust.  It was the largest bankruptcy in U.S. history. Remarkably, the circumstances that led to Enron\u2019s complete corporate collapse and meltdown are abnormally similar to the current FTX meltdown and bankruptcy.  As Mark Twain (1835-1910) once cautioned us, \u201cHistory doesn\u2019t repeat itself, but it often rhymes.\u201d  Even if Enron\u2019s implosion isn\u2019t an historical copy, it is at least a collective “d\u00e9j\u00e0 vu” moment as the world watches the unfolding FTX drama.   <\/p>\n\n\n\n

Why it matters? 
<\/strong>Enron\u2019s collapse sent ripples through the financial system in 2001.  The government introduced a set of stringent regulations for auditors, accountants and senior executives, huge requirements for record keeping, and criminal penalties for securities laws violations. The collapse of Enron gave many average Americans pause about investing. After all, if a giant like Enron could collapse, what investments could they trust?<\/p>\n\n\n\n

The same parallels are making headlines about the FTX corporate collapse.\u00a0 The results are a loss of confidence and significant turbulence in the world\u2019s bitcoin and financial markets.\u00a0 Ramifications from FTX\u2019s collapse are not yet even fully known.\u00a0 They are still playing out in real-time.\u00a0 So, using Enron\u2019s bankruptcy experience as a guide, we can expect FTX\u2019s collapse will lead to increased government regulations, possible criminal charges, and a number of longer-term financial repercussions.\u00a0\u00a0 So, \u201cyes\u201d.\u00a0 The collapse of Enron, and now FTX, does matter because people are flat-out tired of getting screwed over and deceived. Adding insult to injury, like Enron, we again see the all-too-familiar pattern of top FTX corporate executives living lavish and gluttonous lifestyles.<\/p>\n\n\n\n

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Enron\u2019s Organizational Culture Lesson<\/strong><\/p>\n\n\n\n

Culture is the unabashed, unveiled, purest representation of the atmosphere that drives an organization. For any large company to thrive and be productive, it requires a healthy corporate culture among its workers and employers. One of the more important lessons from Enron was that not all organizational cultures lead to success.<\/p>\n\n\n\n

Enron reportedly had a toxic corporate culture. There was no trust or openness between top executives and employees. The result was a workplace filled with secrecy and suspicion. It also spurned internal competition and negativity. Top Enron executives fashioned a toxic corporate culture by means of corruption, greed, and deception. And by failing to sustain an open relationship and trust with its employees, Enron\u2019s executives inevitably drove the company to an unhappy ending. Whenever employees questioned some of the practices and decisions of the company\u2019s leaders, they were either ignored or fired. Leaders at Enron cared more about enriching themselves than the demands of its followers. This lack of regard for ethics showed that the company\u2019s top leaders had no shared vision with its employees that went beyond making profits. At Enron, greed was good. And that is the funny thing about culture. It always tells the truth. <\/p>\n\n\n\n

Leadership and Accountability<\/strong><\/p>\n\n\n\n

Two main leaders emerged from Enron\u2019s historical collapse.  Jeffery Skilling and Andrew Fastow.<\/p>\n\n\n\n

Jeffery Skilling served as Enron\u2019s President and Chief Operating Officer and later CEO. He was given the task of building a staff of executives. Reportedly, he had a big ego, which prevented him from seeing his faults and taking corrective actions, inevitably leading the company to one of the largest business failures in history. Mr. Skilling was sentenced to more than 24 years in jail, but he ultimately served only 12.<\/p>\n\n\n\n

Andrew Fastow served as Enron\u2019s Chief Financial Officer. He and other top Enron executives put pressure on the Arthur Andersen accounting firm to ignore some of Enron\u2019s high-risk accounting practices thereby misleading both the board of directors and audit committee. Mr. Fastow was a major contributor to Enron\u2019s downfall because he manipulated financial statements while also pressuring the auditing team to ignore ethical business practices.  This allowed Fastow and other top executives to enrich themselves.  He pled guilty in 2006 and was sentenced to six years in prison; he was released in 2011.<\/p>\n\n\n\n

The FTX collapse continues to unfold.  So far, the focus is on the (pic 2) company\u2019s 35-year-old founder, Sam Bankman-Fried (also known by his initials, SBF). Until recently, SBF was the institutional face of the cryptocurrency industry. He was a regulator-whisperer and a big donor to the Democratic Party. His meteoric rise made him one of the richest men in the world with a fortune that exceeded $21 billion.  His fortune apparently evaporated in just a few days between Nov. 8 and Nov. 11.<\/p>\n\n\n\n

Lavish Spending and Lifestyles<\/strong><\/p>\n\n\n\n

Enron\u2019s executives lived large and spent lavishly. Everything Enron did had to be better and flashier — from new business ventures it unveiled nearly every year, to the way it celebrated Secretaries’ Day with gifts of Waterford crystal.  No gesture seemed too over-the-top.  Extravagance, in and of itself, did not bring the company down. But the company’s spending reflected a profligate corporate culture according to many former Enron employees. <\/p>\n\n\n\n

Top executives were said to cast traditional business controls by the wayside. Enron\u2019s leaders insisted they were unaware of financial details.  They had relaxed attitudes about conflict of interest, and they let executives sit on both sides of multimillion-dollar deals \u2013 all of which figured heavily in the company’s collapse. At employee meetings for one division, Enron International, a live elephant made a cameo appearance \u2014 twice. For one family picnic, Enron rented the 85-acre Six-Flags AstroWorld amusement park.  Employees flew first-class or business-class and stayed exclusively at luxury hotels. The company’s parking garage was filled with Porsches, Ferraris and BMWs\u2014all emblematic of the sizable bonuses many employees \u201cearned\u201d.<\/p>\n\n\n\n

From what we know so far, the disgraced head of FTX (SBF) moved to the Bahamas in 2021. He lives in a $30 million dollar penthouse in the compound\u2019s seaside Orchid residence.  He and nine FTX confidants ran an \u201cEnron-like\u201d crypto-currency exchange empire from his Bahama\u2019s estate. According to reports, the tycoon\u2019s island life remains rife with hypocrisy and dark secrets.  SBF today is still in the Bahamas as investigators and others are picking through the debris of what is left of FTX and the millions of dollars that are missing.<\/p>\n\n\n\n

Amount Lost & Collateral Damage<\/strong><\/p>\n\n\n\n

One notable effect of the Enron scandal on the corporate world was the dissolution of the Arthur Andersen accounting firm.  It had been one of the five largest audit and accountancy partnerships in the world.  Talk about collateral damage! Enron\u2019s collapse resulted in the loss of more than $60 billion in assets.<\/p>\n\n\n\n

Venture capital firm Sequoia, a major FTX investor, has just written off its entire FTX platform investment. In a letter, Sequoia stated that it valued its $210 million investment in FTX at $0 and considered it a total loss. $32 billion in losses are reported so far from FTX\u2019s bankruptcy. FTX claims it owes another $1 billion to its 50 largest creditors, and FTX still owes more money to over 1 million total creditors. Again, so much collateral damage!<\/p>\n\n\n\n

Lessons?<\/strong><\/p>\n\n\n\n

What happened with ENRON in 2001 remains a powerful leadership lesson and reminder.  It is everyone\u2019s job in an organization to exemplify and live a company’s vision and ensure everyone is positively contributing to it. <\/strong> C-Suite and senior executives, however, are most responsible for setting and establishing their organization\u2019s operating environment and culture.  Bottom-line:  It starts at the top. <\/p>\n\n\n\n

Enron and FTX provide us two laser-focused examples of what happens when a company\u2019s senior leaders are only committed to themselves, and not committed to the expressed company\u2019s values, customers, and employees. Enron\u2019s executives displayed how a powerful organizational culture of greed and mismanagement eventually catches up, and ultimately destroys. Unfortunately for FTX, we\u2019ve \u201cseen this movie before\u201d and the “d\u00e9j\u00e0 vu” feeling is reminiscent of the Enron Corporation\u2019s company collapse in 2021.<\/p>\n\n\n\n

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\u201cHouston, We Have a Problem\u201d It is December 2022, and much of the financial world is watching the colossal collapse of a multibillion-dollar corporate company called FTX.\u00a0 Stories of investors losing billions of dollars as the result of corporate mismanagement and greed reminds me, \u201cWait\u2026we\u2019ve seen this movie before\u201d right?\u00a0 It was a different December. 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