The demise of enron
...olding educational degrees (M.A., M.B.A., B.S., B.B.A.); moreover, many investors held various positions prior to joining Enron, which included: certified public accountants, financial analysts, security executives, foreign investment bankers, and chemical engineers. Enron was very successful in hiring highly qualified employees. Enron has corporate Investment Criteria, which describes the criteria of the geography, investment size, partners, investment stages, and ownership as desired by Enron. Some companies investing in Enron have included Silicon Power Corporations; Solo Energy, Inc.; Active Power, Inc.; UtiliQuest and LLC; Metering Technology Corp. (MTC); Encorp, Inc.; Quanta Services, Inc.; First World Communications, Inc.; iMedeon, Inc.; Dais-Analytic Corporation; FuelCell Energy, Inc.; and Tridium, Inc. Furthermore, Enron investments consisted of many subsidiary companies including the Northern Boarder Pipeline Company and the Northern Plains Natural Gas Company. Enron Oil Trading and Transportation and Enron Product marketing Company were combined in 1994 and was renamed EOTT. Despite being the nation’s seventh-largest company, Enron collapsed into bankruptcy amid disclosure of billions in debt, with hundreds of millions of losses tucked away in a maze of investment partnership. Journalist William Lerach stated, “Millions of Americans invested in Enron because of the confidence they placed in the business practices of the company and the public information provided by its senior executive and accountants. That trust was violated. All too often, these Enron investments represented the future hopes and security for working families across the country” (San Francisco Chronicle, 2002). Since the Enron drama, former Enron head Kenneth Lay surrendered to the FBI Thursday July 8, 2004 and pleaded not guilty to 11 federal criminal counts stemming from the 2001 collapse of the once giant energy trading company. In January, Enron's former Chief Financial Officer Andrew Fastow pleaded guilty to two conspiracy counts and agreed to cooperate with the government's Enron Task Force prosecutors. He is widely expected to be a star witness for the government against Lay and Skilling. Lea Fastow, a real estate and grocery heiress, reported to the federal lockup in downtown Houston, to serve the sentence for her misdemeanor conviction of signing a fraudulent tax return to help her husband, Andrew, hide ill-gotten income from schemes that fueled the energy company's crash. She began a one-year prison sentence the week of July 15, 2004. Enron began trading energy future by leveraging up stocks and trading experience outside their core expertise. However, Enron set up side funds to hide corporate losses and as a result, the losses were not very well hidden. Enron executives believed any investors could get the true story with a little investigation and that the 401(k) could perform its own due diligence (National Review, 2002). Kenneth Lay and other top Enron executives have been accused of selling large quantities of stock in the company while encouraging employees to keep or buy more Enron stock. Lay further added, “The Company is fiscally sound and has a strong balance sheet. Our liquidity has never been stronger, and that again, we have record operating and financial results” (CNN, 2002). In February of 2001, Enron solicited bids for the administration of the employees 401(k) plan to third party candidates. The selection process took close to eight months to complete and by October 2001, Enron notified all affected employees that a selection had been made and the transition would take about two weeks. By October 2001 and continuing to November 2001, the transition applied to all plan participants, including Enron senior executives. During the first days of the Enron shutdown, October 29 through November 13, 2001, participants could transfer funds, although Enron stock share prices went from $13.81 per share to $9.81 a share, a dismal drop of $3.83. On five of those trading days, Enron’s share price closed below $9.89 (CNN, 2002). Outside the brief transition period, Enron employees had been able to transfer their own contributions in the 401(k) plan at the time (Enron, 2002). Enron employees had twenty investment options to choose, including Enron stock. Until recently, Enron provided a 50 percent match on employees’ 401(k) contributions of up to six percent of their base salary. When corporations have a match program to the 401(k) investment by employees, corporations favor control where money is invested, as was the case with Enron. This monetary match came from Enron holdings and, as with most company matching programs, the match was provided in company stock. Stock holdings from Enron could not be transferred into other investment options until the employee reached age 50(Enron, 2002). The executives of Enron were allowed to sell their shares of company stock because the company provides options for its executives, these options could be sold at any time and independently of the 401(k) plan. With the price of stock decreasing in addition to employees having no stock option to exercise, the hold was taken off the 401(k) plan, allowing employees to cash in their investments in Enron stock; however, the stocks were worthless. In the global business arena, corporations share equally the potential susceptibility to the perils of miscommunication and the undulation left in its wake. To be sure, it is the extraordinary company whose corporate officers and employees are not loyal to some degree; however, far beyond exemplary performance or fiscal profit there lies a paradox to the corporate structure: holding close a misplaced loyalty to a faceless company or exercising a freedom to expose potentially menacing, and ultimately devastating, violations of assumed secrecy regarding internal corporate policy. Energy giant Enron and its former vice president, Sherron Watkins, equally share susceptibility to the damaging implosion from within its very infrastructure for a myriad of reasons, including severed ties with powerful political allies and an increasingly devastating series of internal miscommunication leading up to its financial demise. However, it is not without careful consideration regarding miscommunication that this paradox could ever be assumed to define the relationship between loyalty and corporate policy. In September 2001, weeks before Enron went for broke, the corporate giant’s former chief executive officer (CEO) Kenneth Lay touted company reserves; additionally, Lay added Enron stock was an “incredible bargain at current prices, and we will look back a couple of years from now and see the great opportunity that we currently have” (CNN, 2002). Ironically, more than one month previously, former Enron vice president and corporate whistle blower, Sherron Watkins had warned Enron CEO Lay and Andersen Accounting executives in a series of internal communications of impending financial woes. Citing she was “incredibly nervous that Enron will implode in a wave of accounting scandals” and further added, “It sure looks to the layman on the street that we are hiding something” (CNN, 2002). An example of another company that has been involved in a whistle-blowing scandal would be WorldCom. In this situation WorldCom’s Vice-President Cynthia Cooper, responsible for performance evaluation and setting budget standards, informed the Board's audit committee that WorldCom had used deceptive bookkeeping to hide $3.8 billion in losses subsequently assessed as over $9 billion (Caslon analytics 2004). There is evidence that some WorldCom employees may have been aware of the company's efforts to appear more profitable than it actually was as early as March of 2000. Documents also show that senior financial managers at WorldCom instructed lower-level employees to record transactions that the workers felt were unethical. Allegations from WorldCom employees that they told Arthur Anderson about their concerns could cause significant trouble for the auditing company, which repeatedly denied that it had any prior knowledge of WorldCom's efforts to reclassify regular expenses as capital investments (Stern, 2002). In the fall of 2001, Enron may have realized Watkins had indeed foreseen the energy giant’s dismal future: stock prices began to dangerously plummet when Andersen Accounting began to publicly acknowledge several hundred millions of dollars of previously undisclosed liabilities. As a result, thousands of Enron stockholders lost pensions and life savings in the swift collapses, which culminated December 2, 2001 as Enron filed the largest bankruptcy protection case in the United States history. When asked about upcoming financial statistics, Enron CEO Lay replied, “The third quarter is looking great. We will be well positioned for a very strong fourth quarter;” three weeks later, Enron posted third-quarter losses of 618 million dollars (CNN, 2002). Corporate giant Enron, with its distinguished itinerary of political proponents, has plunged deeply into a financial abyss without visible end. Former Enron chief executive officer Kenneth Lay had built a web of allies and various friends in political circles for the past two decades, including a menagerie of Congresspersons and Senators and the President and Vice President of the United States. In addition to pocketing politicians furtively, Enron outwardly lavished nearly 5.8 million dollars in political campaign contributions on various candidates, most notably over seventy-five percent to Republicans. Just two months prior to announcing its bankruptcy in December 2001, Enron CEO Kenneth Lay called on his political ally, Commerce Secretary Donald Evans, to request Evans favorably influence creditors such as Standard & Poor on behalf of Enron. Despite the plea made from an optimistic Lay, Evans declined to contact any of Enron’s creditors. CEO Lay also contacted United States Treasury Secretary Paul O’Neill to advise him of Enron’s impending bankruptcy and warned if Enron did indeed collapse, the outcome would have dire effects on the entire United States economical system; O’Neill simply did nothing. Currently the United States Justice Department is conducting an investigation into Enron. Due to substantial political contributions during his (unsuccessful) Missouri Senate race, United States Attorney General John Ashcroft has to rescue himself from the federal investigation. Additionally, the New York Stock Exchange (NYSE) watchdog, the Securities and Exchange Commission (SEC), is also conducting an investigation, removing Enron from the NYSE as an identifiable investment to potential stockholders. Although the final days of Enron’s investments in the political sense may hav...