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Edgar Zetina

30 September 2014

An Analysis of Morality through the Enron Scandal of 2001

The story of what happened at Enron is interesting when viewed from a variety of

stances. From ethics in the work place to human nature itself, the events that concluded in the

financial collapse of a major firm offer a view of mankind’s ambition and greed. This issue is

best explored by probing the minds of the people who were the driving force behind the scandal.

Kenneth Lay and Jeffrey Skilling were instrumental in creating an organizational culture in

which profits were everything, and morals had no place. Through examining these two

executives, along with other less influential people, one can see how the Enron scandal came to

be.

Enron began as an energy company managed by CEO Kenneth Lay and his chief

operations officer, Jeffrey Skilling. Eventually, Enron became involved in a multitude of

investment projects ranging from high-speed internet to the infamous India disaster. Through

Skilling’s use of an ambiguous accounting technique, Enron was able to claim incredible profits

no matter whether a project was an astounding success or complete failure. This is an accounting

technique, known as mark-to-market, wherein a firm is able to claim potential future gains as

current profits, even if no money is ever made. Enron’s ability to gamble it all on risky projects,

and hide their losses, is what led to their inevitable bankruptcy in 2001.

Lay’s is the quintessential story of the American Dream come true. He was born to a poor

family, but eventually received his Ph.D. in Economics from the University of Houston through

sheer dedication and unrelenting ambition. After attaining the position of chairman and chief

executive officer of Houston Natural Gas, the company that combined with InterNorth to create

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Enron, Lay set his sights on the deregulation of the energy industry. In The Smartest Guys in the

Room, Bethany McLean states that Lay “forged bonds that lasted decades” and used these

connections throughout his life (McLean 5). Of these connections, one which served him time

and time again, especially with his attempts to deregulate the Energy industry, was his friendship

to George W. Bush. These relationships were also used to further Enron’s interests, such as

helping to insure “favorable rulings and regulations” to “spur deregulation along” (88). In a

periodical written in the wake of Kenneth Lay’s trial, Richard Munson describes the effect of

Lay’s actions. He states that “Lay’s name may be vilified” by the scandal, but his trial “probably

won’t stop the revolution he advanced within the power industry” (Munson 61). Munson was

right; the power industry became much more competitive after Lay did away with the inefficient

monopolies that were in place before he deregulated the industry. Kenneth Lay’s charisma and

talent for politics helped pave the way for many of the events pertaining to the Enron Scandal.

Jeffrey Skilling was the other key player in the development and inevitable downfall of

Enron. Skilling is responsible for completely recreating the culture at Enron. He changed

everything about the way Enron ran, from the design of the office buildings to the way people

were paid. He did away with job descriptions and created an environment where “people would

be pitted against one another in an endless battle for dominance” (Eichenwald 49). Skilling was

obsessed with competition, a philosophy which is largely attributed to his favorite book The

Selfish Gene by Richard Dawkins. This book takes a Darwinian view of mankind, suggesting

that people are inherently selfish, not by choice but through their very biologic composition. It is

the evolutionary belief that people are primarily fueled by their desire to fill their needs and

further their interests. However, in The Selfish Gene, Dawkins does not state that this is how

mankind should be, but rather that it is the unfortunate truth of the matter: “My own feeling is

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that a human society based simply on the gene’s law of universal ruthless selfishness would be a

very nasty society in which to live. But, unfortunately, however much we may deplore

something, it does not stop it being true” (Dawkins 10). This did little to deter Skilling from

using this book as a source of validation for his own egotistic philosophy.

The culture created by Skilling and the reforms brought about by Lay combined to create

the perfect setting for the events that were to follow. According to Mclean, “Fortune magazine

named it ‘America’s most innovative company’ six years running” (McLean xxiv). Enron was

revered for its innovative and aggressive tactics. It had political influence, and seemed to be

making unprecedented profits. As a result, the employees became too wrapped up in the belief

that what they were doing was changing the world to consider in which way they were changing

it. Although Enron successfully helped deregulate the energy industry, they also took advantage

of the new opportunities the employee had created.

Enron went on to not only help deregulate the electricity industry, but also became

involved in exploiting the market “through the acquisition of the Portland General Electric

Company” (Markham 63). Enron then went on to “manipulate prices and contribute to an energy

crisis” (63). The process was simple—take away access to electricity from millions of

households to raise the demand, then charge grossly inflated rates for the same service. Through

the use of artificial power outages, Enron was able to create an opportunity to make millions,

primarily from citizens of California. Enron employed many traders whose main purpose was to

find strategies and loopholes through which to further exploit the needs of the citizens of

California. A former trader says, “We took pride in getting around the rules. It was a game”

(Mclean 275). Again, the people involved lost sight of the morality of what they were doing.

They ignored the fact that they were costing Californians millions of dollars. Like many others

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involved in the downfall of Enron, they were too blinded by the profits and the numbers to

consider how they were affecting millions of people. Dawkin’s theory proved true; the traders

gave in to their greed, throwing out morality in the pursuit of financial gains.

In Alex Gibney’s documentary based on McLean’s book, he compares the traders to the

people tested in the Milgram experiment. In this experiment, test subjects believed they were

giving increasingly painful electric shocks to other test subjects, who were actually actors, in an

attempt to test whether it would help with short term memory. Surprisingly, a large percentage of

the test subjects were willing to administer what they believed to be extremely high levels of

electric shocks to test subjects they believed to be in great pain and wished to no longer continue.

The test subjects were willing to do something they normally would not simply because an

authority figure instructed them to do so. McLean draws an interesting analogy between the

subjects in Milgram’s experiments and the traders working for Enron.

Skilling had assumed the position of CEO after Kenneth Lay stepped down. As was

bound to happen, people started to investigate exactly how Enron was making its money. Enron

stock had risen to $90 a share, although the investors had little to no understanding of the firm’s

financial standing. In a Q&A with a financial analyst, Skilling was asked to produce a balance

sheet for the company. After being pressed for answers, Skilling resorted to calling the analyst an

“asshole.” At this time, Skilling was losing his credibility both internally and externally. It was

moments of weakness, such as this one, that foreshadowed Skilling’s descent from the ivory

tower he had created. The market that had once blindly praised Skilling’s bold and aggressive

tactics had now become cynical and wanted evidence. Skilling had always been obsessed with

raising the price of Enron stock. Eventually, he was unable to concoct new schemes to impress

the market. This was a big blow to Skilling, not only as a businessman, but to his very person.

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Skilling had spent his life trying to turn Enron into something bigger than it was meant to be,

with himself in charge of it all. Skilling transformed from the ultra-confident CEO he had always

wanted to be, to a depressed drunk, “spending more and more time smoking cigarettes and

drinking white wine at a handful of bars around Houston” (Mclean 338). On August 13, 2001,

Skilling announced his resignation to the board. To all but a select few, the resignation came as a

complete surprise, raising even more question about the firm’s financial standing.

The stock dropped from $90 to $1 a share from August 2000 to November of 2001. As

the stock began to fail, employees began to experience huge losses. Enron had heavily

encouraged its employees to invest in the company’s stock. Furthermore, a large percentage of

the employee’s 401(k) plans consisted of Enron stock. As a result, Enron’s bankruptcy “resulted

in losses of $1.2 billion to Enron employee pension plans” (Markham 106). The executives knew

this would happen, but still decided to manipulate their employees in an attempt to make one last

large win.

Jeffery Skilling serves as the embodiment of the “selfish gene” described by Richard

Dawkins. Skilling was obsessed with competition and success. He channeled this obsession

toward raising the share value of Enron stock, a decision which proved costly. Jeffery Skilling

lost his everything he had worked so hard to build and replaced it with “42 counts of insider

trading and other charges” (Markham 118). His belief in the biological need to further one’s own

interests allowed him the ability to neglect the implications his actions would have on the lives of

countless people. How could he be blamed for doing what he is biologically wired to do?

However, it is clear Dawkins was trying to assert the very opposite. Dawkins would argue that

Skilling is what is wrong with today’s society. It is imperative for people in today’s society to

keep their ambitions from causing them to abandon their morals. Skilling was not sorry for the

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damage he did to the lives of countless people; he was sorry that his creation came crashing

down.

In comparison, Clifford Baxter was also deeply involved in the deceptive actions of

Enron executives. He served in many roles at Enron, eventually becoming vice chairman and

chief strategy officer in 2000. When he left the company, he was suffering from serious

depression. After the company filed for bankruptcy, Baxter’s depression reached an all-time

high, resulting in his suicide. In his suicide note, Baxter stated, “I’ve always tried to do the right

thing, but where there was once great pride now it’s gone” (McLean 411). Baxter, like Skilling,

could not stand the thought of something that once brought him great pride being turned into a

stain on his character. Baxter was consumed by a guilty conscience; Skilling was primarily

concerned with the fact that he had lost at the game he had created.

Through the examination of those involved in the rise and fall of Enron, one can also

examine the various things which can lead a person to do what they otherwise would not.

Whether it’s a desire to be a respected and powerful figure such as Kenneth Lay, or simply to

succeed in the world of business such as Jeffery Skilling, they were each driven by their selfish

desires to attain their goals. Many others were simply too wrapped up in the idea that Enron was

working to change the world; they were simply doing their part. Yet another group is those who

knew what they were doing was immoral, but deferred the responsibility of the actions to the

people in charge. Whichever the case may be, the Enron scandal paints a dismal portrait of

humanity—one in which the majority of people are either freely willing to do anything for their

own desires, or can be manipulated to do what they normally would not by a sense of

organizational pride mixed with authoritative pressure.

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Works Cited

Dawkins, Richard. The Selfish Gene. 1st ed. Oxford: Oxford University Press, 1989. PDF File.

Eichenwald, Kurt. Conspiracy of Fools: A True Story. 1st ed. New York: Broadway Books,

2005. Print.

Enron: The Smartest Guys in the Room. Dir. Alex Gibney, 2005. DVD.

Markham, Jerry W. A Financial History of Modern U.S. Corporate Scandals: From Enron to

Reform. 1st ed. Armonk, NY: Sharpe, 2006. Print.

McLean, Bethany, and Peter Elkind. The Smartest Guys In The Room: The Amazing Rise and

Scandalous Fall of Enron. 1st ed. New York: Portfolio, 2003. Print.

Munson, Richard. “From Edison o Enron”. The Electricity Journal 18.9 (2005): 51--61. PDF

File.