Manzano, Jerry Mae L.

Grae 12 - Donelan

ABM 129

29 January 2018

Enron: The Smartest guy in the room

1.) Identify the three (3) unethical practices in Enron and explain why.

•Encouraging employees to invest and buy stock in Enron when they knew the truth about the lack of
value in the stock

-As an employee you trust in your management to make the best choices both for you and for the
business to succeed. Ken Lay and other executives strongly encouraged Enron employees to invest in it’s
stock. They all knew that the company was not doing well and yet they encouraged others to spend their
hard earned money investing in it all the while they are selling their shares of stock. Employees trusted
and relied on their decisions and in the end it ended up hurting them.

•Bribing analysts to give Enron good ratings

-In the movie it was mentioned how analysts were bribed and encouraged to give Enron positive ratings.
Positive ratings mean that people invest in the company with the hopes of earning more money. One
Merrill Lynch analyst began to question the numbers and profts that were being produced by Enron and
eventually he was fred. Enron invested a lot oF money with Merrill Lynch and theydidn’t want Enron to
stop investing so Merrill Lynch got rid oF the employee who question Enron, when in reality they should
have listened to him. Merrill Lynch’s decision not to listen to him showed other employees that they
better keep quiet with their opinions or their jobs would be on the line. IF they listened to him they
might have lost the deal with Enron, but in the end they lost it anyway and lost millions along with it.
Merrill Lynch’s main Focus should have been their employees and their investors, not solely Enron.

•Manipulated earnings

-Enron executives and accountants cooked the books and lied about the financial state of the company.
They manipulated the earnings and booked revenue that never came in. This was encouraged by Ken Lay
as long as the company was making money. Once word got out that they were disclosing this
information, their stock plummeted causing the corporation to file for bankruptcy.

2.) Identify three (3) vicious persons in the movie and their vices and explain why.

•Kenneth Lay

-He is the founder, chairman and CEO of Enron. All the facts of the fall of Enron show that Lay is a person
who is dishonest and lacks integrity. Under his leadership, Enron was involved in fraud, causing investors
to lose billions of dollars. In 2001, although known the risky financial condition of Enron, Lay still
announced to employees and investors that the future growth of the company has never been more
certain and urged them to invest in Enron stock further. Meanwhile, in the August of 2001, he sold a
substantial amount of his own shares of stock (Jennings, 2009, p.293). His announcement increased the
price of Enron’s stock further and accelerated the bankruptcy of Enron. At last, Lay destroyed the
companies he built.

•Jeffrey Skilling

-He was the president COO, and also served as CEO from Feb. to Aug. 2001. Mr. Skilling said in his
testimony, “We are on the side of angels” ( Jennings, 2009, p.295). But obviously, they were not. In
August 14, 2001, he left the company without disclosing any financial problems of Enron. He just said
that he wanted to spend more time with his family. However, he sold 500,000 shares on September 17,
2011(Jennings, 2009, p. 293). Before his departure, he also did many things which seem unethical. For
example, Bethany McClean, a Fortune reporter, asked Skilling some questions about profit margin. And
Jeffrey Skilling refused to answer that question although at that time he knew about the financial
condition of Enron. He never disclosed the problems to the public. Additionally, before the Congress, he
denied any knowledge of the financial manipulations until the bankruptcy of Enron. He waived Enron’s
Code of Ethic and led Enron to a death.

•Andrew Fastow

-He was the CFO and directly responsible for Enron’s disaster. He was the person who manipulated the
financial numbers for Enron. He said, “Within the culture of corruption that Enron had, that valued
financial reporting rather than economic value, I believe I was being a hero. I thought I was a hero for
Enron. At the time, I thought I was helping myself and helping Enron to make its numbers” (Jennings,
2009, p.293). He was a principal in many of the off-the-book entities and earned a lot of money from
these entities. In the whole case, he is dishonest.

SOURCES:

McLean, B., & Elkind, P. (2004). Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of
Enron (2th Ed.). Portfolio Trade