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C. William Thomas is a professor (J.E Bush professor of Accounting) at Baylor University’s Hankamer School of Business. The Baylor University is a Christian University, located in Waco, Texas. The article “The rise and Fall of Enron” First appeared in the March-April magazine Issue of the year 2002 – Today’s CPA, which is a bi-monthly magazine published by the Texas Society of CPAs.
C. William Thomas earned his Bachelor of Business Administration Degree (BBA) from Baylor University in 1969, subsequently earning his Master of Business Administration from the same institution two years later, in 1971. Later he earned his PhD degree from the University of Texas at Austin in 1978. He is currently a professor at the Department of Accounting and Business Law at Baylor University. Professor William Thomas lives in Lake Killarney Drive in Waco, Texas.
Analysis of the Article
The author, through giving the historical beginnings of Enron, introduces a Corporation that initially stayed true to the values of hard work, idealism, and an eye for innovative business ideas. The corporation hired a young Jeffrey Skilling who managed to steer it towards the path of unprecedented growth.
Skilling come up with the innovative ‘gas bank’ idea where Enron would fill the existing gap between suppliers and consumers, and the resultant service fees and insurance concerns would be left at the door of Enron. This proved to be a source of huge profits for Enron as it continued to consolidate its position in the business.
The corporation soon earned the admiration of industry experts and investors, and was able to hire the best young minds from across the nation, and the resultant enthusiasm with which these newly recruited employees served the corporation acted to further buttress the position of Enron as a market leader in the Energy sector.
Unfortunately, the exponential growth would prove to be the corporation’s greatest undoing – soon employees were being pressured to meet tough performance targets that had only one supreme focus; the bottom line. This led to negative competition and employees would endeavor to meet these harsh targets with little regard for ethics and professionalism, their aim being a fearful desire to avoid being sacked.
Subsequently, when the US economy dipped and competition from other corporations intensified at the dawn of the 21st Century, Enron – in an effort to veil its declining status as the market leader – exploited financial profit and loss declaration procedures to exaggerate profits and underreport losses. For instance, out of the declared $1.41 billion in pre-tax profits for the year 2000, nearly half of it was speculative.
Further malpractices by Enron, aimed at hiding the corporation’s declining market value and credit rating, intensified. For instance, Enron used its spin off companies as Special Purpose Entities (SPEs) where underperforming overseas companies affiliated with Enron, and Enron’s losses were financially ‘dumped’, leaving the profit and loss statement of Enron Corporation looking deceptively healthy.
The C.E.O, Kenneth Lay meanwhile drew obscene allowances from these spin-off companies. Inevitably, Enron’s cookie finally crumbled under a wave of disclosures of these malpractices and pressure from various interest groups and accounting experts, who saw through Enron’s deceptive veneer of inflated profits. Lay resigned as CEO, and his successor Skilling did so only six months later, with the company eventually filing for bankruptcy and its share price hitting the nadir value of 26 cents.
The validity of the information in the article, the publication source and the validity of the author himself can be described as scholastically sound. The author’s distinguished educational background was presented in the foregoing paragraphs, and the information in the article was initially published in a peer reviewed bi-weekly magazine.
Since the above article was written, new developments and revelations from Enron’s collapse have emerged. According to Aßlünder, a dearth in moral principles on the part of the many actors in the Enron collapse: accountants, Enron managers, and employees, was one of the major factors that enabled the deceptions to continue for as long as they did (2005, p.67).
On the other hand, Brinkman and Sims counter that the organizational culture at Enron was wholly to blame for its eventual collapse. The authors state that the employees were continually pushed towards being more ‘innovative’ (2003, p.245), in a manner and language that seemed to push them towards exploiting and breaking ethical rules for the sake of increasing the corporation’s profits and acquiring new businesses.
In conclusion, the best that can come out of the Enron implosion is the lessons learnt by different corporations, accounting firms, shareholders, and employees. Chandra posits that the most important lesson to be learnt is that those tasked with managing the affairs of a company, be they shareholders, executives or the employees themselves, need to realize that their role in safeguarding the company’s financial and moral well-being is almost sacrosanct (2003, p.100). The price for ‘looking the other way’ is too high, if the Enron case is anything to go by and as aforementioned, the lessons from Enron are paramount.
Aßlünder, M. S. (2005). How could it happen? Enron and the architecture of wrongdoing. EBS Review, 4(20), 63-73.
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Chandra, G. (2003). The Enron implosion and its lessons. Journal of Management Research (09725814), 3(2), 98-111.
Sims, R. R., & Brinkmann, J. (2003). Enron Ethics (Or: Culture Matters More than Codes). Journal of Business Ethics, 45(3), 243-256.