Prior to Andrew Fastow’s talk, we were asked by our COSORES (Corporate Social Responsibility) class to watch a documentary called “The Smartest Guys in the Room. It was about Enron, how it started in 1985 when Ken Lay merged two natural gas pipeline companies to form it. They were the largest seller of natural gas in 1992. After the deregulation of the energy markets, they were the ones who started selling energy at high market prices, resulting to increased revenues.
I am no financial genius and I admit that it was difficult for me at first to understand the jargons in the financial corporate world. Nonetheless, it was interesting to study the case of Enron through the documentary because it gave me a glimpse of how it is in financial markets, though this one is set in the United States. Thankfully, using context clues I was able to grasp the concept of Enron’s rise and fall. At the same time, I did quite a few researches to better understand why Enron reported the largest corporate bankruptcy until US History (until WorldCom).
From what I understood, while Enron’s stock prices skyrocketed to $80-90/share, and at the time they were named “America’s most innovative company”, while investors and many shareholders were excited at the surprising grow of Enron, there was a dirty inside job as they manipulated their numbers to make it look like they were getting high returns and profits.
I personally think that pride and greed can change a person so much. It’s ridiculous to think that a piece of paper we call money can control and give power. I remember from the documentary when one person said that Jeff Skilling, the then CEO of Enron, had a desperate need to believe that Enron was a success, forcing fraud to cover up for the failure they cannot admit. And that most of the people in Enron were nerds, they had the kind of knowledge that can be easily be overlooked by the government and the laws that protect the interest of shareholders and investors for the sake of the good of the whole economy. These nerds are hidden from the image of power that display that’s why many people looked up to them. In fact, they were even connected to the government, involving the image of politics in the whole issue. It was Andrew Fastow who led the fraud to cover up what was really happening—their stock price was up but in reality they were in debt by billions. He put up false partnerships and fake deals to cover up for the debt and make money for himself.
Soon enough after they were exposed, first through Bethany McLean’s article “Is Enron Overpriced?”, many started to doubt their credibility. Not so long after, Enron declared bankruptcy, with over $60 billion in assets. Andrew Fastow, Jeff skilling, Ken Lay, and many other executives of Enron were charged and were sent to prison. Sadly, over a thousand Enron employees lost their jobs, many were heartbroken by the amount that they invested on which could have gone to their future plans.
Now, more than 10 years after Enron filed for bankruptcy, there are many lessons to learn. Fastow is now a consultant in a company and has been continuing to give talks to many institutions about fraud and many corporate ethical issues. It is good that he has learned from his past and is not sharing the lesson away for people not to do it again (though it did, when many other scandals surfaced in the US that led to the economic crisis, some of which were Meryll Lynch, Lehman Borthers, ETC).
Here in the Philippines, corruption is rampant; not only with the government, but also with corporations who have the power because they have the money. The main example was the businesswoman named Napoles, whom angered many of the Filipinos, including my relatives, for taking away their taxes to the pockets of the chosen few. At one point, I realized that the judiciary system in the US penalized those who should be penalized well, and those who deserved to be sent to jail, no matter how much money they have, were jailed. Here in the Philippines, even most of the officials are guilty for taking away a substantial amount of wealth from the people, which frustrates me that even now they have ways to get out of it.
The case of Enron was a wake up call not only to the investors and shareholders, but also to the government, that when it comes to ethics, it would be a long battle as long as the pride and greed of a person is there placed on the table. Nonetheless, there is a solution to lessen trickery and fraud, and that starts with the person himself, with us, as future business owners, to have the right mindset to build bridges by practicing ethical decision making for the good of the many, and not burn bridges because of greed.