The Lessons Enron Taught

The Lessons Enron Taught

1985, was the year that Enron was born. The company was devised of two corporations that merged Houston Natural Gas and InterNorth. As a result of the merger Enron acquired huge liabilities and also lost exclusive rights to its pipelines because of deregulation . The company at this time was in survival mode and needed to earn profits. McKinsey & Co. was hired by then CEO, Kenneth Lay, to assist the business. Jeffrey Skilling was sent by McKinsey to assist Enron. This is when he developed the idea of creating a gas bank :

Enron would buy gas from a network of suppliers and sell

it to a network of consumers, contractually guaranteeing both

the supply and the price, charging fees for the transactions

and assuming the associated risk . The company would inter-

mediate between short-tern and long-term buyers and sellers

of natural gas. To guarantee

the supply Enron provided financing

to third party oil and gas producers .

The concept of the “gas bank” was a huge success. Kenneth Lay was very impressed by Mr. Skilling and later hired him to run a division called Enron finance corp. In an attempt to duplicate the success of gas wholesales in the United States Mr. Skilling opened an office in London, which was also successful . Enron also wanted to trade electricity, so that consumers would one day be able to pick their electricity provider, however this idea never came to fruition.

Although Enron suffered a hard fall the business concepts that the corporation followed were revolutionary. The idea in its most basic form was as follows :

1. Each division or sect is given a particular task or function.

2. There are general guidelines established by the company to be followed by the executive.

The Lessons Enron Taught 2

3. The executive is then given the freedom to implement a plan to complete the

task or function as they see fit.

4. Side ventures that would benefit the company could also be developed or pursued by the executive.

This business method allows for executives to have the freedom to manage without strict guidelines and at the same time generate profits for the corporation. This method can be very risky because there is no uniform way of conducting business. Also, the executive that is overseeing the division may not be capable of managing without well-established guidelines. Finally, the corporation is also more vulnerable to having misconduct within the business because of the lack of supervision. Nevertheless, executives must be allowed to have some independence in order to complete their jobs, which is to ultimately make money and to maximize shareholder value.

Enron’s actions caused many changes to occur in the United States with respect to business: managerial styles were revised, accounting practices were more closely monitored, investors became more skeptical about investing, etc. This is not to discount more importantly that the employees and other individuals were hurt in the process. Enron has become the ultimate model of what not to do in business there were many lessons that can be learned as a result of its fall, which leads to the question, what lessons does the rise and fall of Enron offer regarding leadership, ethics, and organizational structure and change?

The Lessons Enron Taught 3

Leadership in any corporation no matter the size should always be a top priority when running a business. The individuals that are in managerial positions set the stage for what is appropriate in the corporation and what is not. That is why it is very important to have a business code of conduct in place to use as a guideline for everyone. However, more importantly these policies must be followed to be effective. In the case of Enron the leadership team of the company had many secrets and no one was aware of what the other was doing. This was a formula for disaster because communication is important especially in a company as large as Enron.

According to the article by Louise Wadman entitled Showing leaders the impact of communication she talks about the importance of internal communication within businesses. In the article she illustrates how at ABN AMRO a leadership team was established to better employee relations and to make executives aware of opinions