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COE COLLEGE

Enron
The Rise and Fall of an Empire
Tre' Cotton

Introduction
What do energy and natural gas have in common? How about a bankruptcy scandal that
cost millions of employees to not only lose their jobs, but their retirement funds? One of the
worlds largest business scandals is all owed to Enron. Enron was a regional natural gas pipeline
that was formed into a merger between Houston Natural Gas and InterNorth in 1985. After
joining forces, and under the direction of the chairman, Kenneth Lay and the president, Jeffery
Skilling, Enron had become the worlds largest energy trading company and Americas seventh
largest corporation. However, with a competitive culture, greedy executives, and false financial
statements; one of Americas largest companys came crumbling down.
The Enron scandal is a public relations crisis that could have been better handled by those
who represent the company, and by the top executives who controlled the company financially. I
plan to dive deep into the inner workings of the Enron Corporation and discover the reasons why
a great company can become so successful in a matter of months, and then become bankrupt
within a couple days. Additionally, this paper will reveal how the chairman and president of
Enron used the brand or reputation of the company to manipulate investors, and take advantage
of systems across the country to gain revenue. During the scandal, the top executives continued
to pretend as if the company was going to be successful; however, deep down inside Kenneth
Lay and Jeffery Skilling knew the company would eventually go down and the world would
know the truth.
The significance of the Enron scandal is that the executives Kenneth Lay and Jeffery
Skilling created and influenced other Enron associates to become unethical for the betterment of
the corporation. Their influential tactics created a suspicious image for the company; when
paying off private accounting firms to sign off for its financial statements, getting other members

of the board of directors and external resources involved in an unethical operation that would
continue to move Enron up the largest corporate ladder. Enron had a great image that caused
many consumers to trust its product and continue to trade energy. The image, brand, and the plan
to rebuild the companys image are all things that I will be researching.
The Enron crisis is important to public relations because the brand had been destroyed by
its own president and chairman. Being able to restore the companys image to its formal glory is
a hard task, but I believe there is a better way that the company and its top executives could have
handled it. This research will show how Enron had many factors that worked together unethically
to cause its empire to unfortunately crumble. Essentially, the top executives of the company are
representatives that create the work environment culture and ultimately the ones that influence
unethical behavior in the workforce. Ultimately, it will show how many employees and investors
truly believed that Enron would provide wealthy futures, but actually left thousands of people
broke and out of a job.
Enron was a scandal that shocked the world and left so many people curious of what was
really happening. However, this paper will provide detailed facts about how the worlds largest
energy trading corporation had to come to an end with the disappearance of millions of dollars
and retirement funds.
Background
Before filing for bankruptcy in 2001, Enron Corporation was one of the largest
integrated natural gas and electricity companies in the world. ("Enron corporation -,) The
company marketed natural gas worldwide and operated one of the largest natural gas

transmission systems in the world. In addition to natural gas, Enron was a supplier of solar and
wind renewable energy that went global.
In the 1930s, Enron began as Northern Natural Gas Company, which was organized by
three other companies. North American Light & Power Company and United Light & Railways
Company each held 35 percent stake in the new enterprise, while Lone star Gas Corporation
owned the remaining 30 percent. ("Enron corporation -,) During this time, right after the stock
market crash of 1929, there was a high unemployment rate. The company soon took advantage of
the plentiful supply of labor. The high unemployment brought many workers that provided cheap
labor to build its pipeline system. As the company grew in the 1930s, its pipeline doubled in size
bringing the first natural gas supply to Minnesota.
Between 1941 and 1947, United Light & Railways and North American Light & Power
sold its shares of Northern to the public and then it was listed on the New York Stock Exchange
that year. As the years went on, Northern began acquiring various subsidiaries like a natural gas
system in Dubuque, Iowa, and Council Bluffs Gas Council. In 1980, Northern changed its name
to InterNorth, Inc. and eventually got itself involved in a major lawsuit with Cooper Industries
Inc. due to a takeover battle when Cooper was acquiring Crouse-Hinds.
Later, InterNorth made an acquisition of enormous proportions in 1985, when it bid to
purchase Houston Natural Gas Corporation for about $2.26 billion. ("Enron corporation -,)
Once Houston Natural Gas received the offer, they accepted it immediately and merged with
InterNorth to form one of the largest gas pipeline systems in the United States which was about
37,000 miles at that time. Still officially named InterNorth after its merger, the company was
known as HNG/InterNorth with two headquarters located in Omaha, Nebraska and Houston,
Texas. Eventually in 1986, the companys changed its name to Enron Corp., uniting the

headquarters to the Houston office, and Kenneth Lay, HNGs chairman, emerged as chairman of
the combined company causing Enron to begin selling off assets to other companies because the
assets were not a part of its long-term goals.
Enron gained millions of dollars in value quickly. In 1989, Enron Corp. sold 16 percent
of common stock which sold for approximately $200 million. Essentially, Enron was a company
that wanted more and that is what it took when it came to growth. Enron slowly, but
continuously, expanded to the electrical power, in both independent production and
cogeneration facilities, in the late 80s. In addition to expanding to electricity, Enron reached an
agreement with Coastal Corporation which allowed them to increase its production from its Big
Piney field in Wyoming. By the beginning of 1991, Enron expanded oversees, building its first
power plant in Teesside, England making it the largest gas-fired cogeneration company in the
world, and then building more in nations around the globe.
In the United States, states were given the power to deregulate gas and electric utilities
in 1994, which meant that residential customers could choose utilities in the same way that they
chose their phone carriers. This allowed Enron to move into the residential electricity market
allowing them to acquire Portland General; giving them access to Californias $20-billion market
and 650,000 customers in Oregon.
The Crisis
In 1995, Enron CEO Kenneth Lay had promised many investors that the companys
profits would rise by 15 percent a year over the next five years causing many investors such as
banks to invest in the huge corporation, not knowing that soon the company would eventually
crumble. Enron saw that there were huge profits in the deregulated electricity market, so the

company spent millions on advertising and lobbying for the chance to be involved with that
market. Many of the people who worked for Enron were typically top business school graduates
who helped the company define new markets; however, no one knew that many of the previous
projects were going bad. For instance, its huge deal to build a power plant in India, worth $2.8
billion, was held up by embittered local politicians. ("Enron corporation -,)
The companys overall earnings in the early 90s were between 16 and 20 percent, but that
number shrank to 11 percent in 1995. In the second quarter of 1997, the company took a $550
million charge, representing losses on the Indian project and others. ("Enron corporation -,)
Seeing that the company had experienced such a huge loss, Enron continued to spend large
amounts on advertisements and lobbying for deregulation. Although Enron was experiencing
losses, it had other ideas to make money. For example, Enron created Enron Online, which was
an Internet-based commodities trading service. Furthermore, Enron also launched Enron
Broadband Services, a unit that traded capacity in telecommunications bandwidth. Enron traded
gas and electricity as well as more exotic futures such as weather. This gave companies whose
business was affected by weather, such as home heating companies or golf courses, a hedge
against the risk of unfavorable weather. ("Enron corporation -,) With all of these investments,
Enron began to gain Wall Streets attention causing Enrons stock to rise from 55 percent in 1999
to 87 percent over 2000.
Enron began to look like a company who could recover from major losses; however,
investors and the general public didnt realize that Enron was actually still losing millions of
dollars consistently. One of the biggest things that investors were concerned about was Enrons
aura of getting in on the ground floor of various related industries. ("Enron corporation -,)
Enron had set up a number of limited liability special purpose entities that allowed Enron to

hide its liabilities while growing its stock price. (Folger) This allowed for consumers and
employees to continue to invest in the natural gas giant even though it was deep in debt.
While stilling pulling the wool over the eyes of investors, Enron tried to cover its tracks
by doing some creative accounting, allowing it to look like a powerful company in its financial
statements. Special purpose entities subsidiaries that have a single purpose and that did not
need to be included in Enron's balance sheet were used to hide risky investment activities and
financial losses. (Folger) Also, after some forensic accounting, it was noticed that Enrons
assets and profits were inflated and sometimes fraudulent and nonexistent, which also proved
that some of Enrons losses and debts were recorded in offshore entities; remaining from the
companys financial statements.(Folger)
Shortly after in 2001, Enrons CEO, Jeffery Skilling, resigned unexpectedly and telling
Wall Street to investigate the health of the company. Skilling and Kenneth Lay, along with other
Enron executives, began selling off large amounts of Enron stock while prices continued to drop
from about $90 a share to a dollar. The U.S. Securities and Exchange Commission (SEC)
opened an investigation and within weeks Enron filed for bankruptcy protection knowing that it
had billions of dollars in outstanding debt. The Enron scandal drew attention to accounting and
corporate fraud, as its shareholders lost $74 billion in the four years leading up to its bankruptcy,
and its employees lost billions in pension benefits.(Folger) Later, the U.S Department of Justice
started a criminal investigation on the companys bankruptcy. Several Enron executives and
Enron's auditor firm, Arthur Andersen, have since been indicted for a variety of charges
including obstruction of justice for shredding documents and conspiracy to commit wire and
securities fraud, and some have been sentenced to prison.(Folger)

As the Enron Empire collapsed, thousands of employees of Enron lost millions of dollars.
With the 401(k) retirement plan, employees had the chance to put much of their hard earned
savings into the corporation. For several weeks, as the stock lost much of its value, workers
stood by helplessly as their retirement savings evaporated. They were not allowed to switch
investments at all -- even though the plan had far less risky choices. (Oppel, 2001) At Portland
General Electric, a company that was acquired by Enron, some employees who were near
retirement had lost hundreds of thousands of dollars. To help those that lost majority of their life
savings, Portland General Electric lined up grief counselors to help them through the rough
times. 'We had some married couples who both worked who lost as much as $800,000 or
$900,000' said Steve Lacey, an emergency-repair dispatcher for Portland General. It pretty much
wiped out every employee's savings plan.'(Oppel, 2001)
The companys/organizations response
After the manipulation and forging financial statements, Enron was slowly being
discovered as the company it really was. However, after Skilling resigned, Lay tried to take some
steps and lead the company back to its former glory. On Monday, October 22, 2000 he
convened a meeting at the Hyatt of Enrons best and brightest not just members of the
management committee, but all the companys directors, about 80 people in all. (McLean &
Elkind, 2003) The purpose of the meeting was to cast as part of the Enrons new open
communication in the post-skilling era. (McLean & Elkind, 2003) However, the meeting
discussion had quickly gone to Fastows partnerships. Andy Fastow was the chief financial
officer for Enron. It was Fastow who designed the complex web of off-balance sheet
companies that allowed Enron to hide its true financial condition from investors. (Meglio,
2012)

From a public relations stand point, Mark Palmer, the Director of Communications at the
time, found it very hard to represent the company internally and externally due to executives
consistently changing information and positions. According to Palmer, We were the worst on
internal communications, though it was not that we didn't try. Additionally, Palmer claimed that
We didn't have time to get any information together, and the day we filed for bankruptcy, we
laid off 5,000 employees. (Hall , 2003) During the scandal, the communications department was
always left outside of the loop causing for the company to not be represented very well to public.
The only way that the public was informed was through the articles about the companys
suspicious financial statements, and the continuous layoffs that were implemented by top
executives.
Enron spent a lot of money on investors and public relations. The company had big
special lobbying staffs that helped make sure that the company got its voice heard during the
bankruptcy scandal. Enron paid influential commentators $50,000 a year to be a part of what
CEO Ken Lay called his board of advisors. ("How Enron played," 2002) For instance, William
Kristol, the editor of the Weekly Standard, in addition to economist Paul Krugman, a New York
Times columnist, was a part of his selective group. According to Barbara Shook, a journalist had
been following Enron since they had formed in 1986, most of the media bought Enron's hype,
and they kept coming up with the numbers. ("How Enron played," 2002) However, since she
had been following the natural gas giant since the beginning of time she said that she was close
enough to their operations to question the numbers. They didn't seem to be performing in any
way that would support the numbers they were reporting, ("How Enron played," 2002)
Essentially, Enron was good at creating illusions with its financial statements.

Public Reaction
Once it was apparent that one of the worlds greatest empires was crumbling down, the
public outraged. Additionally, the scandal had intensified public outrage at the overwhelming
corruption of elections, Congress, and state legislatures by big-business money. ("The Enron
scandal," 2002) Many of the former Enron employees had a bittersweet relief after the conviction
of the two Enron executives. The former employees watched the entire story play out as
thousands of them struggled to find new jobs, tried to rebuild their savings and put their lives
back together. During the time that the employees were with Enron, and Before the company
announced that its financial statements for previous years were bogus, Enron placed a lockdown
on its 401(k) plans that barred employees from accessing the accounts as the company changed
administrators for the stock plan. By the time the lockdown was over, shares had sunk even
lower. (Patel & Cook, 2006) Therefore, the employees and innocent people had no chance to
retrieve their own savings that they worked very hard for. This one decision left them jobless,
homeless, and broke with no future financial stability.
Enron was one of many other corporations that had filed for bankruptcy; however,
because of Enron Congress passed the Sarbanes-Oxley Act. The intent of the SOX Act was to
protect investors, and really all stakeholders in a business firm, by improving the accuracy and
reliability of corporate disclosures, such as earnings reports, pursuant to securities laws and
regulations. (Peavler) The acts hold the companies CEOs and CFOs responsible for the
information that is presented in the financial statements creating more ethical business practices.
Analysis

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After digging deeper into the inner workings of the Enron scandal, the way the executives
and company handled the crisis was not the best. One of the biggest reasons for the empire to
crumble was because of greed and not being able to work as a team. Incorporating those key
things into the culture began to poison the mission of the company which left thousands of
employees broke and unable to provide for their families.
While researching the Enron scandal, Ive learned that the public relations department of
the company was not informed at all or not enough to do their jobs. Decisions made by the
company were made so fast that the public relations department didnt have a chance to put a
plan in place to restore the image of the company. Without a plan the company will not be able to
communicate with the media in the proper way without giving to much information to the public.
However, in this case many of the executives were speaking on their own not having any clear
direction of how to speak to the media.
If I was a part of the Enron Corporation, as a public relations professional, I would first
form a team with the top executives of the company and the public relations department. Then
we would create a plan for the company which would in tell the proper way to speak to the
media and how to restore the image of the company. Additionally, I would assign one of the
executives as a main speaker for the corporation to be consistent with the public that way the
media doesnt get multiple stories causing the corporation to look even more suspicious.
Overall, the way that Enron handled their image was careless and confusing for the
public. The way that Enron went about the situation was not the best because no one was
working as a team. Working for their own personal interest, greed, and need for control are some
of the biggest things that caused the Enron Corporation to crumble.

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Conclusion
Overall, Enron was a corporation that was a strategic company that works really hard to
hide its problems that was clear to not only its employees, but to the media as well. The Enron
Corporation started out as a small company who eventually had a merger creating one of the
largest corporations in the world. Enron executives, Kenneth Lay and Jeffery Skilling, worked
hard to create a driving workforce that was competitive which pushed the employees to work
harder to make the company earn more. Although much of the work culture was very
competitive, it was also the beginning to rise and fall of a multibillion dollar empire.
Jeffery and Kenneth had everything possible that they needed in a corporation until they
demanded more and became greedy. As a top corporation in the United States and Texas they had
enough. However, while working with one of the top accounting firms at the time, Arthur
Anderson, signed off on financial statements that allowed them to hid losses. Essentially, Enron
was losing more than what it was bringing in, but somehow the company was still fully
functioning because of the money from investors who were persuaded that Enron profits would
increase by 11 percent every year over five years.
After investing in the company, investors began to regret their decision. The company
began to be discovered when top executives resigned and traded in their stocks for huge sums of
cash. Although the executives got out of the situation without much of a loss, the employees of
Enron lost everything. Some had their entire life savings invested in the Enron stock and when
the corporation lost everything including billions of dollars in retirement funds, it left thousands
of employees broke and homeless.

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Reference
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Oppel, R. (2001, November 22). Employees' retirement plan is a victim as Enron tumbles.
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McLean , B., & Elkind, P. (2003). The smartest guys in the room - the amazing rise and
scandalous fall of Enron. New York : Portfolio
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Patel, P., & Cook , L. (2006, May 26). Enron verdict bittersweet for some ex-workers. Retrieved
from http://www.chron.com/business/enron/article/Enron-verdict-bittersweet-for-some-exworkers-1851143.php
Peavler, R. (n.d.). The sarbanes-oxley act and the Enron scandal - why are they important?
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