The pride and the fall of Enron
Oct. 20, 2002, 2:23AM
chron.com
By TOM FOWLER
Copyright 2002 Houston Chronicle
The following is an excerpt:
" Enron's tumble from Wall Street darling to corporate deadbeat
seemed precipitous. A year later, it's clear the fall was a long
time coming.
While the company grew rapidly through the 1990s, some of the
worst manifestations of its culture -- obsessions with bonuses,
the stock price and exotic accounting -- were also growing, and
out of control.
Though the corporation's character flaws can be traced to its
earliest days, they flourished under top executive Jeff Skilling.
He didn't act in a vacuum. Enron had a distracted, hands-off
chairman, a compliant board of directors and an impotent staff of
accountants, auditors and lawyers.
But it was Skilling's relentless push for creativity and
competitiveness that fostered a growth-at-any-cost culture,
drowning out voices of caution and overriding all checks and
balances.
Skilling's attorney derides as "ridiculous" any suggestion his
client allowed internal controls to be overriden. But interviews
with dozens of current and former employees over the past year
reveal that the creative aggressiveness Skilling deemed essential
to dominating new markets went untempered by good business
sense or fiscal discipline. The same decisions lauded as key to
the company's future were also key to its demise.
"It was all about taking profits now and worrying about the
details later," said one former Enron deal maker. "The Enron
system was
just ripe for corruption."
Enron's culture wasn't spawned overnight. Its roots go back to
the earliest days of the company, before Skilling came aboard.
In 1987, company auditors learned of a billion-dollar oil-trading
scandal at the company's Valhalla, N.Y., offices. For years,
traders there had falsified transactions to boost volume -- and
fatten their bonuses.
Instead of firing the traders and contacting authorities,
Chairman Ken Lay and his management team kept them on the
payroll and tried to cover up the problems. Lay said the company
needed the revenue.
Six months later, however, the traders had dug the hole even deeper and competitors
were growing suspicious. If word got out, Enron's trading partners could have
demanded the company cover its positions with cash, which it didn't have.
Only then were the traders fired and charged with crimes. Enron narrowly skirted
insolvency by bluffing the markets, then slowly unwinding the trades. The company
later reported an $85 million loss, but sources say it was probably at least $136 million.
Not long after, in the early 1990s, Enron made one of its earliest uses of creative
financing, through a massive English power plant project known as Teesside. Enron
owned about half of the project but was able to book as much as $100 million in
revenue while the plant was still being built by acting as its own general contractor.
That was years before the project earned a dime."
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