I don't get the impression from reading the book that the authors have even tried to analyzed the financial holdings that was set up. It is the thinnest book on Enron that I read, for very good reason.

Fusaro, P. and Miller, R. M., 2003. What went wrong at Enron, Everyone's guide to the largest bankruptcy in U.S. history. John Wiley and Sons, paperback, 240 p.

The moral and cultural lessons of Enron range from the need for ethical behaviour, grounding in truthfulness, honesty, transparency and a need for complete disclosure in accounting and corporate structure. This is the ultimate source of insight into how it all happened. Other sources also point to the underlying dangers represented by a betrayal of trust within the capitalism market system.

The Enron style of approach to flourish in newly deregulated energy and utility markets that have been engineered by governments since the mid 1980s. The levels of executive culpability and it shows the decay and or frailty of underlying value systems which should stand against such events. The events and actions that led to Enron's demise have far more and significant implications to the fate and quality of our own society.

But is Enron a systemic problem or is the ultimate problem the nature of market capitalism itself. If the latter then to avoid more Enron's it is necessary to have moral and ethical tethers to clearly defined absolute terms such as right and wrong (good and evil) in a corporate business environment, otherwise concepts on which an economic system depends, such as trust between all participants, will ultimately breakdown.

Internally, the dynamics of the Enron enterprise set out in this book show a salutary lesson of what should not be present in an apparently healthy and profitable corporate enterprise: failure of 'knowledge conditions', senior management being isolated from those at operational levels (?); individuals pursuing sub-goals that are contrary to overall corporate goals; restrictions on the flows of bad news as opposed to any positive 'spin'.

The underlying causes of an Enron outcome are in fact within the nature of corporations themselves. Their hierarchical structure, limited span of control, self-interest, limited discourse and intimidatory corporate culture all point to a flaw in the nature of many public-listed corporations. Some suggest that the Enron case is one which warrants a revaluation of the shareholder centric model of corporations; management actions should not longer be orientated at maximising the current share price.

Some see the lessons of Enron as being a company that, when in trouble, was unwilling to admit its own shortcomings and thus became driven to cover-up a few bad decisions by making even worse ones. An early admission and some critical changes in operations could have saved the trading side of the business. Instead profit growth at all costs an unwillingness to admit that poor decisions had been made, led to even more exaggeration and fraudulent reporting.

The key problem with Enron was that it had all the surfical signs of a good corporate citizen in place with corporate social responsibility, business ethics tools and status symbols all in place. The greatest danger is that the Enron situation is not atypical of many aspects of many corporate organisations: those who closed their eyes to wrong doings (in Enron) were rewarded; others who sought to give warnings were punished; the win-at-all-costs mentality. The Enron lesson is that business is in the long term only going to survive by virtue of developing and following ethical behaviour. No one single error occurred just the compounding of many errors, all of which were preventable. It was based on a success at all cost culture where the ends always justified the means.

Enron is not explicable as just ethical and moral failure without examining why these failures occurred. Enron was a corporate product of both willingness to bend the rules and the opportunity to bend them. Others suggest that there are limited lessons to be learnt from the Enron story: that is to say Enron is bankrupt because of speculation and legal but unsound accounting and financing schemes. This view suggests that this proves that the free-market works; speculators and those at the margin of the market must suffer as and when the market turns. As such Enron investors were punished by the stock market for their poor judgment. The energy markets adjusted to Enron's collapse with few problems. As for the stock market crash, well, booms and busts are a natural part of a healthy capitalist economy.

A must have book for anyone who wants to know the inside story.

Other academic reading:

. Benston, G. J., and Hartgraves, A. L., 2002. Enron: what happened and what can we learn from it. Journal of Accounting and Public Policy, 21, 105-127.

Carson, T. L., 2003. Self-interest and business ethics: some lessons of the recent corporate scandals. Journal of Business Ethics, 43, 389-394.

Chatergee, S., 2003. Enron's incremental descent into bankruptcy: a strategic and organisational analysis. Long Range Planning 36, 133-149.

Cohan, J. A., 2002. "I didn't know" and "I was only doing my job": Has corporate governance careened out of control? A case study of Enron's information myopia. Journal of Business Ethics, 40, 275-299.

Currall, S., and Epstein, M. J., 2003. The Fragility of Organizational Trust: Lessons from the rise and fall of Enron. Organizational Dynamics, 32 (2), 193-206.

Desai, A. B. and Rittenberg, T., 1997. Global ethics: an integrative framework for MNEs. Journal of Business Ethics, 16, 791-800.

Sims, R. R. and Brinkman, J., 2003. Enron ethics (or: culture matters more than codes). Journal of Business Ethics 45, 243-245.

Spector, B., 2003. HRM at Enron: the unindited co-conspirator. Organizational Dynamics, 32 (2), 207-22.


Dr I Lavering
Adjunct Professor
MBT Program UNSW

Let's start with the positives:
- the book is easy to read and reasonably well written;
- the basic facts of the story are covered;
- the book starts the story way back before the problems emerged so that you get a feel for what the business was up to.

But
- it is very short book for such a complex subject
- the "unravelling" - the investigations into "what went wrong" are (ironically) not well covered
- there is almost no coverage of the Andersen issues

So save your dollar, pound, euro or yen - don't waste it on this book.

What really went wrong at Enron?

A question that cannot be answered easily due to its nature of complexity. Thousands and hundreds investors, including Enronýýs employees who vested their retirement benefits in the s401k plan solely with Enron sharesýK..The horrible downfall alarmed the investment community, hurt the professional society (accountant, lawyer, underwriter etc.) and credibility of the monitoring commissionýK. The U.S. government reacted with the new legislation (Sabanes-Oxley Act) as an ýýattemptýý to tackle the problem, trying to put the companyýýs management back on track to shoulder its fiduciary duty to the companyýýs shareholder. But, does it work? The extent to which the various partiesýý responsibilities is still clouded.

If we do not really analyze the root causes which led to the Enronýýs downfall, we never know the answer. This book, written with the targeted general audience, is published at the right time to give the public a good chance to find the ashes in the smoke. At least for the moment.

According to this book, the tragedy was played by an arrogant CEO, greedy senior executive, loyal whistleblower, with the backdrop of a wrongly conceived free economy principle. The book is well written and gives insightful analyses based on the available evidence and traces. Some of the factors leading to the tragedy noted by the authors are:

*ýX The use of SPE (Special Purpose Vehicles) in accounting to keep off the accounting profits as well as to hide the potential liabilities
*ýX The constantly fearing environment built by the Corporate Culture emphasizing on a sense of urgency
*ýX Over-extension of operations in the deregulated energy and telecommunication market
*ýX Mark-to-market accounting principles
*ýX Less than full companyýýs disclosure tendency
*ýX Valuation problem of customized contracts
* Making commitment as a counter-party to every trade in arbitrage markets
*ýX Trading from natural gas to electricity to bandwidth to 1800 different products in the Enron online
*ýX Conflicting companyýýs strategy: asset-lite vs. debt heavy financed investments
*ýX Manipulated earning estimated to meet expectations
*ýX Deals financed by high Enronýýs stock price
*ýX Excessive investment in optic fibre networks

The list could go on and on. In fact, Enron went to the extent that deals were made just for the sake of making them. The more you read about the book, the more you feel it is a Shakespearean tragedy ýV things are certain to get worse with all of these interrelated factors playing on stage. The general audience, those who believed that the play had a good ending, bought the tickets but found that the play was ultimately turn out to be a tragic one. They suffered. However, the director said: ýýYou bought the tickets because you believed in the play had a good ending. I didnýýt say that it would end in that way.ýý Refund? No.

The investigation into Enronýýs alleged sham trading and potential fraud scheme is still in progress as of this writingýK..I highly recommend the book to the general readers, although it is better if you are financially literate. It is a thought-provoking and interesting read, especially to the CPAs.