Power Failure: The inside story of the collapse of Enron

powerfailure.jpg“Power Failure:…”, as the title of the book suggests, is an insider account of the rise and fall of Enron. It is co-written by Sherron Watkins, a former Enron executive and Mimi Swartz, a writer for Texas Monthly. Watkins takes us on a journey of the lives and activities of Ken Lay (‘Kenny Boy’ as President Bush called him), Jeff Skilling, and Andy Fastow. The book explains Enron’s rise from its humble beginnings to an international power, and then its descent to become one of the most abhorred corporations in American history.

In all my intercations with business students in the US, I have never come across even one student who told me s/he has never heard of Enron. At the same time, most young students don’t really know what happened behind-the-scenes that led to the rapid decline of Enron and the accompanying Enron scandal. Power Failure is a good book for those who are interested in learning about Enron and what really happened there.

Oh, and if you are wondering what Sherron Watkins is doing these days, she is the founder of Sherron Watkins and Company. She is on the lecture circuit where she discusses her experience at Enron and corporate ethical leadership.    

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28 responses to “Power Failure: The inside story of the collapse of Enron

  1. Nicole Furman

    I have actually really enjoyed this book so far. I started reading it last night, and I am already on chapter three. I appreciate that the author kept it easy-to-read and interesting. One concept that came to my mind while reading is networking. Sherron describes her experience at an executive conference where everyone must choose an activity to participate in. She is really careful about what she chooses because she wants to be around the “right” people. This is very important because Enron is really conscious about who you know and who likes you. She knows that being seen with “losers” could make a big difference in her career and/or how much people respect her. Therefore, she chooses to go “antiquing” because she knows she will be among people who are good enough to be seen with and to socialize with. This reminds me of the networking I’ve done with firms over the past couple years. When you go to a recruiting social event, you have to be mindful of who you talk to. You want to be sure that you are talking to the most powerful person in the room because that will give you a better chance of getting “in” with the company. In all, I think this book does an accurate job of portraying company sponsored social events. Even though the idea is to have fun, it is important not to let your guard down too much. You have to be aware of how those around you are viewed, and you have to make sure you are networking with people who will bring you up.

  2. Blake DeNoyer

    After reading through chapter 13, I’ve actually been surprised about a number of things that I would have never thought could be true about Enron. One, I wasn’t aware that in the early 90’s, Enron was at the forefront of US corporations in the implementation of internal controls. Also, I did not know that Kenneth Lay would have taken a place in George H. Bush, Sr.’s presidential cabinet if he would have won his second term against Bill Clinton in 1992. Another odd thing I learned was that in the early 90’s, Ken Lay, as CEO of Enron, had little knowledge of Jeff Skilling’s ideas and workings that were making Enron millions of dollars. A lot of top management believed that Lay was incapable of understanding the complex ideas of Skilling.
    I also heard something interesting on CNN the other day. After Lay’s death, following the Enron trial, his management style was studied and now prestigious universities, such as Princeton and Stanford, are teaching their students Lay’s management methods.

  3. Steve Kluthe

    I started reading this book last night night and i made it through chapter 1. I am really glad that the author is making it an easy read. I also find it fasinating that the things that people do in corporate american to try to move up and how every decision you make you should always be thinking of how that is going to be viewed. A good example of this is in when there are differnt outings that all of the people in the corporation can go to and if they choose the wrong one it could be death to there chances of promotion. I also thought it was interesting how the CEO and COO have moved there way all the way to the top and yet they forget everyone that got them there becasue they where every they go they believe that they are better then everyone else. I think a good CEO would be very approachable and not judging i am excited to learn about the true inner things that caused the great company of Enron to fall

  4. Umutai Mamarasulova

    I’m almost done reading chapter three, and so far the book does a great job of introducing backgrounds of Sharron Watkins, Ken Lay, Rich Kinder, Rebecca Mark, and Jeffrey Skilling. I like the fact that the book covers Enron’s story from the very beginning and how each one of these people were brought into the company. I also like the fact that the author makes it easy to read.

  5. Amy Ulrich

    I have read through most of chapter 1. So far it introduces the character Sherron Watkins and her position at Enron. She explains that Enron is a changing corporation and are in a lot of different industries. She is at a retreat for work where she is making Salsa and explaining how important it is to be in an activity where she is with important members of Enron’s Management team. I like this book so far it is interesting and seems like a good introduction to the rest of this book.

  6. Nicole Furman

    As I get further into this book, I get more and more shocked about the things that were actually allowed to go on at Enron. Before reading this book, I’d imagined a sort of contained fraud in the accounting department. I never thought that it was brought on by the entire organizational culture! Management was definately to blame for the problem. In all of my management and accounting courses, the professors have stressed that it is important for management to set an ethical “tone from the top” in their organization. When management acts ethically and stresses the importance of integrity, it will filter down to the lower levels of management and to the employees. This was NOT the case at Enron. Ken Lay and Jeff Skilling were all about money, and their greed seemed to have no boundaries! Managers were given raises based on how many deals they could make. It did not matter if they reported the numbers correctly. As long as they could come up with some number that looked promising, Enron would book it and give the manager a big, fat raise (usually millions of dollars!) Another example of poor ethical behavior is on the trading floor. The book talks about how everyone was afraid to go on the trading floor because it was a harsh, nasty place where people were rude and hot-headed. This attitude started with management! If Lay and Skilling would have created a more honest organization, I truly believe that the problems at Enron could have been avoided.

  7. Amy Ulrich

    I have finished chapter one and chapter two.  The rest of chapter one talks about Sherron Watkins the main character and her experience at this conference for Enron.  In chapter two it talks about Ken Lay and his background.  Lay is from the mid-west and grew up poor.  He was well educated and after college had many great positions in companies.  The one I find most interesting was that he was in the Navy.  This surprises me because people in the military are very pasionate about following rules and going by the book.  In his case this was not true.  The merger of two companies one in Omaha and the other Lay worked at in Houston became what is known as Enron.  What really surprises me is that there was a company that was inherited from the old Omaha company which was committing fraud and when Arthur Andersen started questioning this Lay did not fire the employees instead he kept them.  The same employees kept making fictitious deals and the company had to report a huge loss for that period.  It is kind of comical that Enron had fraud occurring then and later in the company history it just got much worse.  I guess happiness is money to someone people.

  8. Blake DeNoyer

    Half way through the book, it is obvious what Enron is setting itself up for. Year after year, they are battling to find another profit-making scheme to make up for the losses incurred from previous failures. No wonder everyone thought that Enron was the most innovative company in the world. They HAD to try and find new ways to generate income because all of their previous ventures were failing misserably due to pre-recocognition of profits, which ultimately never met the expected profits Enron had estimated. This caused major losses within the company.

    I think Lay may have had the least knowledge on what was going on because Skilling was, for the most part, in command of operations. Skilling’s main conspirator was Fastow who didnt have an ethical bone in his body. Everything he touched was tainted. He was given many awards and fooled many investors with his innovative, yet illegal accounting treatments.

  9. Nicole Furman

    Well I just finished this book, and I am definately glad that I chose it. I feel like I understand a lot more about the Enron situation and why changes like Sarbanes Oxley were needed. Given the severeness of the situation at Enron, it is no wonder that such a stringent law was passed. A lot of people complain that SOX was an overreaction, but its hard to say how the SEC should have reacted differently. I find it hard to believe how bad things actually were at Enron. Fastow’s complex system of SPEs are especially unbelieveable. How on earth would a company’s upper management AND a company’s EXTERNAL AUDITORS even begin to think these related party transactions were okay!??! Before reading this book, I never fully understood the risks associated with related parties. In my accounting classes, we’ve held many discussions about RPTs and disclosure rules associated with them. Although they seem complicated and strict, I guess they are necessary because, otherwise, people will try to take advantage. On a side note, I can also say that it was helpful to watch the Enron movie while reading this book. Sometimes the book gets a little hard to follow as it skips around in time. It was good to have a general timeline in mind from the movie as I read.

  10. Amy Ulrich

    I have am almost done with the book. It is interesting to know what actually went on at Enron. It just seems like every year Enron had to do better than the year before. They really didn’t care how this was achieved but it had to happen. The mangers like Ken Lay and Jeff Skilling from what I read seem kind of sketchy. Jeff had a horrible temper and didn’t treat his employees with very much respect. Enron got into so many different business ventures it was sometimes hard to keep track of what they were actually doing. Overall this book is somewhat interesting and sometimes it just dragged on. The funniest thing I read was about the traders of Enron and how rude they were to everyone else. I can not believe that the company would allow them to act like this.

  11. Umutai Mamarasulova

    Swartz does a good job of describing the wild culture of Enron, which was mostly dominated by young talented men, who saw that there was no need to follow the rules in the company, because they were the ones who made the rules. It is also obvious that Enron was all about money, favoring those who brought huge deals with huge amount unethically, and eliminated those who may be worked hard, but didn’t have the luck of getting those big deals for the company. Inside culture of Enron reminded me of a high school in many ways. For example, just like in high school, one didn’t want to be around unpopular guys or losers and preferred to hang out with the cool guys or “winners,” not to enjoy their company, but to increase the credibility. It is also sad that Enron was proud to employ many of its workers for less than two years. I don’t think that is enough time to even get used to the people around or job one’s assigned. According to the book, Enron was a risky and stressful place to work for many reasons, one of which is reorganization that was done to throw out the employees who did not bring big bucks to Enron, regardless of their nonfinancial contributions to the company, efforts and past performances did not matter either, unless Skilling or some other key executive favored the employee.

  12. Chris Bellinzoni

    In what I have read so far I have seen a great deal about the beginnings of the company itself as well as its top executives and key players. The backgrounds of key players such as Ken Lay, Jeff Skilling, Rebecca Mark, Sherron Watkins, Rich Kinder, and Andy Fastow were addressed. Also discussed was the initial creation of Enron via the merger of Houston Natural Gas and Inter North, which from the very start of the company put it in a poor debt situation due to the $71/share price paid. In addition, a lot of the shady yet common business practices have been illustrated; things such as the Valhalla trading debacle, the highly suspect way Skilling used the performance review process at EGS to remove employees, and the chauvinistic ‘Boiler Room’ atmosphere on the Enron Capital & Trade trading.

    What has been astounding to me thus far has been the way in which shady and gray business practices can overrun such a large company to the point where underhanded and marginally ethical practices become company policy. The groupthink effect that stemmed from the desires of a few high ranking officers is really quite amazing. People seemed to have gotten so caught up in the chance to make it big at Enron that they lost all concept of what made a good business deal. A business practice that at any other firm would have been immediately shut down due to questionable moral ground got pushed through because of the belief that anything could be done at Enron. It’s startling how quickly people can put away their sense of right and wrong when going against the flow can lead to a timely invitation to be successful elsewhere!

  13. Ryan Seymour

    In reading through chapter 8 of Power Failure: The Inside Story of the Collapse of Enron by Mimi Swartz and Sherron Watkins, I have learned volumes about the behind-the-scene players involved in the Enron scandal and the timeline of events. The authors gave in-depth character backgrounds of several former top Enron executives some of whom included Ken Lay (CEO, superseded by Jeff Skilling), Jeff Skilling (CEO, superseded Ken Lay), Andy Fastow (Enron’s CFO), Lou Pai (in charge of Enron’s trading), Rebecca Mark (Harvard MBA and CEO of Enron Development Corporation (EDC)), and Gene Humphrey (President and Managing Director at Enron). The authors also identified many of Enron’s divisions some of which included Joint Energy Development Interests (JEDI), Enron Capital & Trade (ECT), Enron Gas Service (EGS), and Enron Energy Services (EES). We learn how Enron first started running into trouble by essentially gambling with its own assets through risky trades and was forced to climb out of a $190 million hole (i.e., missed $100 performance mark and had loss of $90 million). Enron’s goal was to eliminate debt from its balance sheets so these events prompted Enron executives to use very creative accounting methods (i.e., special purpose entities (SPEs)). Lastly, the history of Arthur Anderson was covered and how its consulting business indirectly put pressure on its audit business, which ultimately contributed to the collapse of Enron.

    Having studied accounting for the better part of four years and having had experience working on an audit team for a major public company, I have found this book to be particularly interesting. I was immediately hooked on this book after reading Fayez Sarofim’s quote in the introduction “I can’t understand their [Enron] balance sheets.” Sarofim, a well-known fund manager and handler of over $40 billion in assets, had the wherewithal to realize that there was something fishy about Enron’s financials. Having studied the Enron case in several accounting classes, I was already familiar with the company and its aggressive accounting strategies, but learning more about the key players involved in the Enron scandal on a personal level was also interesting, and I look forward to learning even more about them in future chapters.

  14. Lauren Spielberg

    While reading Power Failure, I came across a lot of foreshadowing of what would eventually happen to Enron, but wasn’t apparent to anyone until the company finally collapsed. To start, Enron thought it was invincible. The company’s management thought that it could use only one business model for every industry and every market. They also didn’t think that completion could ever arise. Additionally, Enron thought that they were above rules. One example is the Valhalla trading group, which was an early sign on what Enron would become. Its operations were fictitious and Enron’s CEO Ken Lay didn’t fire the traders who made up false statements and clients and got Enron into more trouble later on. Further into Enron’s history, the company recognized profits during its current period that were for the future. It had stock prices that were three times its book value. Its clients were undependable. Also, it used mark-to-market accounting, which caused the company to always be growing and looking for growth. This will usually end up with a company becoming desperate and going to different lengths that may be illegal and unethical. Enron also developed special purpose entities that didn’t show debt on balance sheets. This allows Enron to show that it has more assets and less debt that it actually does. Enron also created volumetric production payments that were off-balance sheet. Having too many projects and entities off a company’s balance sheet will eventually lead to disaster and knowing how much debt and assets the company has.

    I found it funny the similarities between the city of Houston, where Enron was located, and Enron, the company itself. Houston was said to be able to make anything happen without the interference from anyone else. Houston loved progress and was hell-bent on the future. This was also true of Enron.

  15. Carol Luong (MGMT 540)

    Reading through chapter 7, I have learned the personal and professional backgrounds of key players, such as Sherron Watkins, Ken Lay, Rich Kinder, Andy Fastow, Jeff Skilling, Rebecca Mark, Lou Pai, and more. I have also gained insight into Enron’s cutthroat culture where almost anything goes. The pressure was high, the young and best were hired, employees often looked out for their own backs, most were openly rude and cocky, and traders had most influential power. The history of how Enron evolved over time was also described, as the company quickly went from having a vision of being the first natural gas major to being the most innovative and reliable provider of clean energy worldwide for a better environment. Because of the overly high expectations Enron had for itself, the company found itself emersed in unethical practices that eventually led to illegal practices. It almost became too easy for Enron to get away with whatever it wished because the company had a major influence on the market; it dominated the market, made the rules, and everyone else had to play by them. Enron also had the backing of Arthur Andersen to approve any accounting practices that Enron wished to implement.

    So far, I find it interesting that the book puts a big emphasis on the history of each individual person and how they played a role in the company. It can be hypothesized that the author may be hinting that Enron’s downfall was mainly because of its employees and corporate culture; businesses are made up of people. Learning about each individuals personalities and histories gives readers insight on how everyone is interconnected and is a puzzle piece to a whole picture.

  16. Rachael Schwartz

    The first few chapters of Power Failure give readers a picture into the beginning of this massive corporation. Enron began as an innovative and interesting corporation with goals to change the way the world was fueled. The book detailed all of Enron’s’ most important players from Ken Lay, Enron’s first influential CEO, to Jeff Skilling, the CEO that would eventually plunge from the top. Enron worked hard to build a strong and influential staff to head projects and expand the company. The culture was tough and the people were forced to do whatever to get ahead. The staff consisted of both strongly intrinsic and extrinsically motivated employees who cared mainly about being the best. While these employees found themselves in possession of incredible wealth and power they also from the beginning lacked morals. Every move an employee made had to be strategic, even something as trivial as an activity during a company-wide convention.
    What bothered me so much about Enron’s beginnings was how they snowballed from minimal immoral acts, to tweaking of the books, to becoming one of the biggest financial downfalls in the history of our country. Enron was built on poor morals and lack of accountability. Anyone who could make the company money could do no wrong. The book described a “hottie board” created by some of Enron’s top executives. The board rated women and was a pure violation of sexual harassment laws, but if this upset any woman their complaints were merely met with threats. A violation this simple in the beginning of the company’s growth stages shows clearly how morally corrupt the top management was willing to become. It makes me see the big picture and wonder just how easy it could be for another company to become the next Enron. It begins with something small like a “hottie board” and we all know what happens next.

  17. Brian Capra

    Although I have only read through the first five chapters of ‘Power Failure,’ there are various themes that quickly become apparent. As each character is introduced, their background explained and their role as an Enron employee unfolds, it becomes increasingly clear that there are several common denominators among successful Enron employees. First, they are highly motivated and ambitious. They are driven to succeed and are willing to push themselves and others in order to do so. Although different the different people come from different backgrounds, some are Harvard MBA’s, some worked at accounting firms, brokerage houses, etc., they all are highly intelligent and highly ambitious.

    However, this sentiment leads to a corporate culture at Enron that may be perceived as cutthroat where employees will do anything, including stepping on other employees in order to get ahead. It has a culture that sees itself as ‘winners’ where there is almost an air of arrogance present. The top employees believe that they are the smartest, they only hire the smartest people, and that everyone else are ‘losers.’ From what I’ve read so far, it even seems as if their is competition and animosity to be the best within the different divisions of Enron. For instance, Skilling and Enron Gas Services only hired the very best and brightest and almost perceived themselves as being better than the other divisions. A few times throughout the reading, the authors mention how the ‘pipeline’ guys who actually run the physical pipeline assets are considered ‘losers’ because they are part of the past and are an irrelevant factor in the future. Above all else, it is very clear that executives and Enron as a whole are constantly looking toward the future. They are always five steps ahead when they haven’t yet completed step two.

    So far the book has been an enjoyable and interesting read and I hope it will continue to be throughout.

  18. Chris Bellinzoni

    What I’ve seen since my last post is what Enron calls ‘perfecting its business model.’ To outsiders Enron leads them to believe this means entering new markets (e.g. Broadband & electricity trading) and becoming a market leader via innovation. In truth what it means is finding more outlandish ways to hide losses and debt in such a way that there appears only to be steady revenue growth. The creation of FAS 125 by Jeff McMahon and Fastow’s Alpine, RADR, Chewco, and LJM entities all allowed the company to bury losing projects and make them appear on the balance sheet as profits. LJM & LJM2 had added bonuses for Fastow which included more power and clout within the company and the opportunity to amass a small fortune for himself. Also in this section of reading was more proof that good news at Enron made you a star and bad news got you evicted! Such was the case with Keith Power and the Mark Roberts report on Enron’s true valuation.

    Several people at different times within Enron have questioned some of the odd practices that were being used. The few who tried in earnest to bring it to an executive’s attention at best were told to ignore it, and at worst forced out of the company. Every time someone saw something that should have been a red flag to top management they were already on their way to creating another. What I question is this: where was the point of no return for the company? When did they reach the point where they couldn’t go ‘straight’ even if they wanted to because they would just go belly up? Very early on the business of SPE’s and mark-to-market accounting and FAS-125’s seemed more like lapping schemes to me than sound business. At what point in time, I wonder, did they get so deep into faulty annual revenues that they couldn’t turn back even if they wanted to?

  19. Lauren Spielberg

    Since last posting, I have come across lots of antics that Enron allowed to happen in its company. First, Skilling tried to buy and trade electricity which was illegal in some states, but managed to have a bill passed in Washington, in order to get what he wanted. Enron constantly artificially made companies in order to improve its stock price, which inflated the book value of Enron. They were always only focused on the current stock price and didn’t have any strategic plan or strategy to implement. In order to increase profits, Enron front-loaded assets from 5-20 years into profit streams in one year. They used Total Return Swap with banks and put cash flow into the company that may not have ever actually existed. In order to finance project, Enron created special purpose entities (SPEs). This caused Enron to have even more debt, which they never actually stated on their balance sheets. It didn’t surprise me when Enron assumed that it could transform the Internet and trade bandwidth just like it did for gas and electricity. Enron always wanted to apply the same concepts to every industry.
    Another antic that Enron allowed was that its traders were always given special treatment and felt that they were entitled to everything because they worked hard. The traders earned the most income, no matter how corrupt their practices were. Additionally, Enron executives were always fighting against each other trying to sabotage the other in order to move up in the company. If they had all worked together so much more could have been achieved. Finally, Enron used cross-collateralization with the Raptors in order to offset losses, but never reported that they were doing this to the board. Stuart Zisman, one of Enron’s attorneys noticed that Enron had poor investments as well as cooked financial books that eliminated drags on earnings. When Zisman had mentioned this to higher-ups, he was told not to worry about it. Everyone in Enron always turned a blind eye to all of the unethical behavior that occurred in the company.

  20. Brian Capra

    I have read a little over two thirds of “Power Failure” and the book still strikes me as interesting and easily read.

    At this point, I am beginning to see how Enron is unraveling and coming apart at its seams. Throughout the book there have been two common themes that seem to be leading down a road of disaster. First, almost every executive is almost 100% motivated by having a top management title and top management bonuses. In order to achieve this status and the money that goes along with it, people push hard in order to sign big deals. The problem is these executives are often compensated based on the size of the deal and are compensated when the deal is signed rather than when the deal becomes a reality. For this reason, many of the deals are monumental, but are also impractical and doomed to failure. Rebecca Mark is one example of this philosophy. She continued to sign international deals for power plants and water companies in foreign countries, making gigantic bonuses. However, her projects rarely made the return she promised, often cost Enron more than she claimed, and ultimately many of them never even really got off the ground.

    The second major issue that I perceive to be a major problem in the future is Andy Fastow and his use of Special Purpose Entities (SPE’s). In the beginning, Fastow used these SPE’s in order to effectively hide debt from appearing on Enron’s balance sheet. On a small scale, this doesn’t pose too much of a problem but Enron continued to use larger and larger SPE’s in order to cover up debt and later in order to produce profits that may or may not exist. The real problem and the one that may have brought Enron down is when Fastow began using himself and his close friends as the 3% outside investors in the SPE’s. With Andy’s creation of LJM2 and others, he created a monumental conflict of interest. It is becoming more and more common for deals that benefit LJM2 and ultimately Andy be pushed through while other deals, although good for Enron to be rejected if they go against LJM2. It seems at this point that there is an obvious divide in Enron and that the gap is becoming increasingly large. As Abraham Lincoln said, “A house divided cannot stand.”

  21. Ryan Seymour

    Since my last post, I have read through chapter 16 of Power Failure: The Inside Story of the Collapse of Enron, and have learned more about the events leading up to Enron’s collapse in late 2001. Between chapters 8 and 16, several new key characters were introduced by Swartz and Watkins including, but not limited to: Vince Kaminski (in 1999 was Enron’s head of research), Rick Buy (Enron’s chief risk officer), Jordan Mintz (a tax lawyer in Enron’s Global Finance unit in 2000 who was puzzled by some of Enron’s accounting), and Keith Power (manager at Enron who discovered that Enron was overvaluing JEDI’s assets). The authors also discuss at length Enron’s various SPEs, which it used to decrease its debt and hedge against risky investments (e.g., CalPERS, Chewco Investments, RhythumsNet Connections, LJM, etc.). In early fall of 2000, Jeff Skilling’s To-Do list included having to fixing the billion-dollar bad-press problem that was India and fixing Enron Energy Services, which looked to have at least half a billion dollars of “mark to model” gains on the books that might or might have not materialized. Swartz and Watkins also make mentioned of how Enron’s stock price was suffering, going from $80 a share at the beginning of 2001 to $55 in the first quarter of that same year. After learning of the income statement manipulation scheme (i.e., Raptor vehicles), Sherron Watkins decided that she had no choice but to leave Enron because the company was in the midst of the worst accounting fraud she had ever seen.

    It is interesting that a few months prior to the collapse of Enron, a number of financial analysts (e.g., Mark Roberts) and reporters were already skeptical of the reliability of the company’s financial statements. Swartz and Watkins write that in an April 12, 2001 Yahoo message board, an anonymous poster claimed that Enron executives had been operating an elaborate con scheme that had fooled even the most sophisticated analysts. From the moment Jeff Skilling took over for Ken Lay as CEO in early fall of 2000, he was fighting an uphill battle, having to fix many billion-dollar problems, which prompted him, along with other insiders, to cut corners when it came to reporting Enron’s financial data. The company’s problems started to snowball (i.e., stock price, earnings, etc.) and even the best and brightest at Enron were unable to fix the problems, so executives resorted to using fraudulent accounting practices.

  22. Carol Luong

    Two-thirds through the book, we see the intensity of deception and disorganization within Enron become more apparent. Enron has continually put too much pressure on itself to have increasing returns every year and relied on ways to circumvent recording losses. It ranged from FAS 125’s to SPE’s and even getting Merrill Lynch involved in unethical behavior. Enron was even ranked top 100 place to work for, according to Fortune magazine, but only because satisfaction surveys were all forged by Enron HR and PR. Fastow couldn’t even run his own business because Enron was not a fostering environment. They did not teach their employees, but rather expected their employees to already know everything.

    We also begin to see Enron’s journey into unknown territory- Technology. It began with investing in Rhythms NetConnections and then followed by the partnership with Sun Microsystems and Blockbuster to create Enron Broadband Services. However, Enron still couldn’t get anything up and running because there was no integration within the company. Everyone worked independently and felt that their way was the best way. However, Enron still continually booked clients even though they had nothing tangible to offer.

    Enron had billions of dollars of debt from bad businesses, but still found ways to record profits and revenues. Ken Lay finally stepped down as CEO in 2001 because he believed “the best time for a succession to occur is when the company is doing well.” It’s interesting to see how Ken Lay believed Enron was doing well. Was he that naive?

  23. Rachael Schwartz

    It was very interesting to see Enrons place in the technological world. Looking at the quick expansion of Enron Broadband Services it is clear that they were an innovative company, who was not afraid to go into the next best thing. If there was a more moral leadership in place it seems that they could still be on of the best companies still today.

    I find it ridiculous that Enron has not been caught yet after everything they have done. The politics inside the company alone with mixed with all the illegal and immoral things they do, one would expect that someone inside would leak the information. Everything inside the company is so political and even the divisions are against one another. “Soon, everyone within the new division was at war: those charged with building the network hated the Enron managers who supervised them, and vice versa.” p 188. This quote is the perfect picture of the politics and hate that was going on inside the company. Everyone was constantly trying to undercut their supervisors and making things awful inside the company.

    I am constantly surprised that anything actually gets done in the company. It seems they are way to focused on politics and keeping their jobs by forging things to even make any business happen. Maybe if the Enron employees focused their efforts on doing something good for the company and not for themselves then the company would have been in a better financial position. They waste so much effort as a company to hide their financial position and bribe people.

  24. Ryan Seymour

    Since my last post, I have finished reading the book (i.e., chapter 17 through the appendices) and overall I feel that the authors were effective in describing the events that led up to Enron’s failure in late 2001. In chapter 17, we learn that Jeff Skilling formally “resigned” on August 14, 2001 but did not accept the $20 million severance package he was entitled. Later in the book we learn of the memo Sherron Watkins wrote to Ken Lay, which contained the famous line “I am incredibly nervous that we [Enron] will implode in a wave of accounting scandals.” One of the Watkins’ biggest concerns was who would bear the $500 million Raptors loss in deals with Enron, which at the time was unclear. By December 1, 2001, Enron had filed for bankruptcy and sued a gas-trading business called Dynegy, formerly known as Natural Gas Clearinghouse, after the company attempted to repudiate a November 7, 2001 tentative agreement to merge with Enron. On January 16, 2002, David Duncan, the engagement partner on Enron, was fired by Arthur Anderson for supposedly shredding documents in violation of federal laws. In the end, Sherron Watkins was labeled the heroine and whistleblower during the Enron trial and she officially left the company in late November of 2002.

    I enjoyed the last third of this book more than I did the first two thirds because I was able to see exactly how Enron’s “house of cards” fell. In the press, Ken Lay was labeled the villain in the Enron case and while he was certainly responsible, I had the impression the Sherron Watkins never fully blamed him for Enron’s collapse. For instance, near the end of the book Sherron Watkins wrote a memo on her computer, which read: “Ken Lay and his board were duped by a COO who wanted the targets met no matter what the consequences, a CFO motivated by personal greed and 2 of the most respected firms AA & Co and V&E, who had both grown too wealthy off Enron’s yearly business and no longer performed their roles as Ken Lay, the board, and just about anybody on the street would expect as a minimum standard for CPAs and attorneys.” The lesson to be learned from the Enron case is that no matter how intelligent or creative a businessperson thinks he or she is, there is no getting around the fact that a fraud, in the long run, will almost always be detected because the double entry accounting system (i.e., that is debits and credits), which is currently mandatory under U.S. generally accepted accounting principles (GAAP), essentially limits the number of ways a particular item in the financials can be reported.

  25. Lauren Spielberg

    After finishing Power Failure, it amazes me how the company was so unethical and wasn’t caught sooner. To begin, Enron purposely sent large amounts of power through power lines to create congestion and increase the price of electricity in California. Enron blamed deregulation and the state of California for not developing power plants to cover the demand. In actuality, California had plenty of capacity but it was Enron’s fault. If people ever became suspicious of Enron’s practices, an executive would tell them they were wrong and to forget about it. In the early 2000s, more and more people inside and outside of the Enron became suspicious and began questioning the company. Ken Lay continually lied to everyone stating that the company was in good shape and that performance was strong. He was always certain that growth would happen, even when the stock price kept dropping. I found it funny when Enron decided to sell its trading unit to UBS, who shut down the unit 9 months after acquiring it. Obviously the trading unit wasn’t good for UBS and was probably never good for Enron either. In the end, Enron got what it deserved, going bankrupt and having many of its executives indicted.

  26. Chris Bellinzoni

    In this last third of the book we see the house of cards finally come crashing down. In her attempts to do the morally correct thing for her company, Sherron attempts to bring the gigantic issues she’s uncovered to the ‘right’ people’s attention, only to be ostracized for her trouble. We also saw Skilling collapse under the pressure of trying to keep a doomed ship from submersion, and eventually the ‘non-recurring’ charges brought more scrutiny from the public than the company could handle, finally bringing about the ultimate demise of the company.

    Several of the events astounded me during this last third of the book, too many to discuss here. Something that certainly stood out was Sherron’s loosing battle to try and bring the issues she discovered to someone’s attention. She tried speaking with the lawyers, the accountants, colleagues, superiors, and even Ken Lay himself. Every time she had another meeting she was hoping that it would be the one where she could make the person see the glaring concerns; and in every meeting came the realization that the person across the table was too entrenched in the practices to see things her way (aka: the truth). It reminded me a little bit of a bad zombie horror movie- the main character thinks she’s found a friend and ally to help fight off the intruders only to discover that the friend is actually one of them!

  27. Rachael Schwartz

    Enron’s first criticism was due to the California Energy Crisis. In this crisis Enron used its power to profit immensely and simultaneously screw over their customer’s. A snowball effect in the form of closing unprofitable operations, inflated book values, suspicious deals with hedged operations, and the resignation of Jeff Skilling lead the business world to question the credibility of Enron. As suspicions grew the stock price plummeted leaving dedicated employees like Sherron Watkins, the whistleblower, questioning the organization they once supported whole-heartedly. Ken Lay enthusiastically backed his organization till the end, but nothing could be done to fix the damage that had already been caused. Employees were left with nothing and top managers were left with the blame.

    While I knew what was coming at the end of the book it was still crazy to see how the end of Enron materialized. It was surprising to see how the whistleblower Sherron Watkins was really only trying to help the company. She just cared about the employees and people that could get hurt by what was happening on the inside. While I knew the outcome it was sad and difficult to see how many people lost everything from the mistakes of a few executives.

  28. Brian Capra

    Although I knew that ‘Power Failure’ would ultimately end with the rapid collapse of Enron, I was still astonished as Mimi Swartz described the event in detail. The degree to which the executives continued to try to assure employees the company would be fine was amazing. Even as the bitter end was eminent, and executives were selling massive amounts of stock, they preached the greatness of Enron.

    Aside from this first point, I was also amazed to learn that many of the top executives walked away with millions of dollars. They allocated the millions in severance packages to the elite few and the masses received virtually nothing for their years of hard work. On top of this, some members such as Lou Pai, who had a direct part in the demise of Enron walked away from court unscathed and filthy rich.

    ‘Power Failure’ in my opinion, was a fantastic window into one of, if not the most controversial business scandals in U.S. history. I found it ever intriguing to learn the inner workings and culture of Enron. The sheer mechanics of their business and the ingenuity of the earnings and balance sheet manipulation are staggering and impressive, as well as physically sickening. If nothing else, it shows what can happen when people with the wrong motivations are too smart for their own good. The results of failures such as Enron, Tyco and WorldCom can be see across the face of modern business. They have forced demand for more transparent business operations as well as increased regulation in various industries, especially that of public accounting.

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