The Enron parade

November 29th, 2011

On December 2, 2001, Enron Corporation, a Houston-based energy company with assets of $63.4 billion, declared bankruptcy making it the largest bankruptcy in the U.S. up to that time. The ensuing Enron scandal saw the jailing of several of its top executives including Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. It also saw the demise of accounting firm Arthur Andersen, and the creation of the Sarbanes-Oxley Act, legislation designed to protect shareholders by putting tighter restrictions on companies regarding destroying, altering, or fabricating financial records. James Post, a professor in the School of Management, is an expert on corporate governance. He offers the following comments on the post-Enron environment during the past decade:

“December 2 marks the 10th anniversary of the collapse of Enron. But Enron is much more than a bankruptcy filing. It was the first major corporate scandal of the 21st century and seems certain to live on as an iconic example of fraud, deception, and failed corporate governance.

“Behind the deceit were men who prided themselves on being the “smartest guys in the room.” Three men were at the center of the scheme: Kenneth Lay, the chairman; Jeffrey Skilling, CEO and strategist; and Andrew Fastow, the financial whiz kid who, as CFO, used a host of accounting devices to manipulate revenue and hide financial facts from Enron’s board of directors, auditors, and investors. Years later, Lay, Skilling, and Fastow were convicted and sentenced to prison terms. Lay died before he could begin his sentence.

“Enron is a landmark of failed ethics and corporate governance. Foremost, it is a lesson in human weakness for behind the three central actors were dozens of other executives, auditors, and managers who committed the little acts of deception that aided and abetted the grand scheme. Without these “venial sins,” the great swindle might have never occurred.

“Enron produced the Sarbanes-Oxley law which imposed new standards of disclosure and transparency on corporate officers. “Sunlight is the best disinfectant,” wrote Justice Louis Brandeis in the 1920s. Yet, we wonder whether any law can stop a determined corporate crook?

“In less than a decade, the parade of corporate criminals has grown longer: Americans have witnessed the collapse of WorldCom, another gigantic corporate fraud, and Bernie Madoff’s $65 billion Ponzi scheme, and more. And we must mention Wall Street’s multi-trillion dollar destruction of wealth through financial engineering that produced the subprime mortgage crisis and the insider trading schemes of Raj Rajaratnam and associates.

“The Enron parade keeps growing.”

Contact Post at 617-353-4162; jepost@bu.edu

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