The once mighty energy trader has become everyone's favorite whipping boy. Unjustly so, I say. There's no shame in a little arrogance, greed, and financial chicanery in the business world.
Enron was born in 1985 when Houston Natural Gas merged with InterNorth, a natural gas company based in Omaha, Nebraska, forming a system with about 37,000 miles of pipeline. In 1989, Enron started trading natural-gas commodities and became the world's largest buyer and seller of natural gas. The company soon became the premier electricity marketer as well, then directed its seemingly Midas touch to such commodities as weather derivatives, bandwidth, pulp, paper, and plastics. Scaling to the seventh-largest corporation in the United States, with a market capitalization of nearly $60 billion, Enron was an investor's dream.
Okay, so the company fudged its numbers. But Wall Street played the happy fool as long as Enron continued to report billions of dollars in steadily upward earnings. Along the way, more than a few financial analysts raised doubts about the veracity of the numbers that Enron was posting. Finding the company's real revenueas opposed to reported revenuewas akin to locating the hidden bean in a shell game. Nothing unusual here. The financial markets of late work on a simple system greased by consensual delusion: We can all make money on the emperor's stunning wardrobe until some damn fool yells out "naked" and ruins the fun.
It's reasonable to expect that an independent accounting firm would voice the bare truth. But Arthur Andersen was bringing in millions of dollars of private consulting revenue from Enron while also collecting millions for auditing the company's books. I'm sure it was just an oversight; it's easy to lose count with so many zeros floating around.
AS LOSSES STARTED piling up at Enron, company executives set up off-balance-sheet financing vehicles to hide the evidence. In essence, new companies were formed that took on Enron debt, leaving Enron's credit ratings healthy so that it could obtain the cash and credit crucial to running its commodities business. Enron executives were generously compensated for the additional load of running these spin-off business units, of course. Often we have heard it said that desperation fuels creativity. Desperately locked into a lowly seven-digit compensation package, Enron execs rewarded themselves a parallel seven-digit package for the same day's work. Bravo to Business 2.0 magazine for recognizing this entrepreneurial genius, heralding the company after all sins had come to light: "The company may be doomed, but the innovations Enron pioneered are likely to endure."
Thousands of Enron employees lament that they will not be so lucky to see their retirement savings endure. Enron made its 401(k) matching contribution in company stock. When the share price was rising like a rocket, the match was treated like manna from heaven. And like the children of Israel, the employees greedily grabbed up more manna than was wise. They had other investment choices, including a safe money market fund. But few could pass up the quick road to instant wealth.
If only they had the instincts of Enron chair Kenneth Lay, who unloaded $23 million worth of his company's stock shortly before Enron's troubles came to light. Then again, Enron employees were led to believe that the company was flying high. Heck, even the Astros' new baseball stadiumwhich critics say delivers its own less-than-legitimate home runsadopted the company name. Ever the humble one, Lay claims he had no idea that Enron's finances were as unstable as a house of cards.
In any case, the Enron workers could have quit and gone to work for Texaco or Trans World Airlines. Oops! I guess those companies also failed when their executives mismanaged operations yet made fortunes for doing so. But you get the picture.
Put simply, Enron executives aren't getting their due. They pushed the dream of corporate America to the limit and deserve everything now coming their way.
David Batstone, a founding editor of Business 2.0 magazine, is executive editor of Sojourners.