Analysis of the ENRON: Smartest Guys in the Room Movie
The movie entitled “ENRON: Smartest Guys in The Room is based on a book with the same title written by Bethany Mclean and Peter Elkind. The movie is about a crime story and the bankruptcy of ENRON, one of the most successful and even considered as the 7th largest corporation in America, due to the fraudulent acts by the top management. The film shows video tapes or footage and audio records that reveals the immorality of Enron’s employees and management and the non-existence of corporate values and proper leadership.
The director’s cut also shows the greediness and the erroneous administration of the top management composed by Kenneth Lay, the founder of the business, Jeffrey Skillings and Andrew Fastow, all of them are considered as the smartest guys in the room including their accomplices. ENRON started from humble beginnings, from the dreams of Kenneth Lay to create a business and escape poverty however it soon became the core of the owners’ greediness. One of the managements’ specialty is to create false income from a strategy called “mark to market which records the assets of the company using the recent value in the market. Subsequently, Skilling thought of another method to falsify the company’s real financial position through “Hypothetical future value which includes counting the business expected income in the future and excluding the losses of the company. The company never experienced any net loss which made people wondering how it is possible for an energy giant company to never experience any losses while other similar businesses experienced it. These questions led a market analyst to question the income of the company on a conference which Skilling avoided by calling him an “a-hole.
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The film then revealed another tactic which is creating corrupt offshore corporate shells through Fastow to cover and move ENRON’s losses on those company. However, it was getting hard for the company to cover up the real position of the business especially when they experienced severe losses from employees leaving the company, a failed partnership and expansion in India which never gained profit because the residents can’t afford the product. Bethany Mclean was the first person to really question the quarterly finance of the company by making an article entitle “Is ENRON overpriced? which Skilling quickly dismissed by saying he couldn’t explain the financial information because he wasn’t an accountant. In hopes to get a source of income, ENRON created a fake energy crisis in California to get the price of energy to rise in the market. The fake energy crisis is called deregulation which created a chaos in California, shutting down 50% of energy industry and making the price of electricity increase by 76%.
One of the victims of the crisis is an old woman called “Grandma Millie who accused Enron about making millions because of the energy shortage. The residents of California noticed these unlawful acts and they sued ENRON 6 billion for the refund of energy. One of the victims of the crisis is an old woman called “Grandma Millie who accused Enron about making millions because of the energy shortage. Enron justified themselves by saying that California is not the only source of income of the company. Since then, the company experienced a downfall and Skilling resigned from his position leaving Lay as the CEO of the company. Skilling however did not escape the collapse of the company and both of them together with Lay faced a criminal trial in Texas together with that is the dissolution of their auditing firm which is Arthur Anderson for destroying the files of ENRON.
Faking the financial statements or the financial information to the public to deceive its user was the downfall of this successful company. The movie incorporated a concept similar to tragedy that creates a domino effect. In truth, the company was never one of the top performers in fact it was supposed to fail from the very start but the top management started lying about the company’s income and to cover up their lie they needed to come up with another until there was no turning back. The company abused the use of “Mark to market and created illusory income that lured the stockholders of the business. In addition, the management itself was very dysfunctional, the business never valued its stakeholders especially their employees. The company wanted the employees to share the same beliefs as them when it comes to facilitating the business operations and have the same skills and capabilities. In fact, the employees go through a process called appraisal system where the top performers receive many financial rewards while the bottom ones are kicked out of the company. This system encouraged some employees to give in to Skilling’s plans and immerge themselves in fraudulent acts intentionally or unintentionally. One of the largest contributors to the crimes of ENRON is Arthur Anderson for faking up the financial statements and giving in to the high-priced auditing fees of the company, making them one of the accomplice to achieve the corrupt system of ENRON. The blame does not only go for the top management and the auditing firm but also to the employees who let ENRON continue with the fraudulent acts and opted to stay silent either because they fear losing their jobs or they gave in to their own greediness. The downfall of ENRON is not only a loss for the top management but also for the stakeholders affected by its dissolution, in truth 20,000 employees lost their jobs. These people also lost their retirement fees and the worth of the stocks that they bought in the company, in addition there are also victims in Portland which are the utility employees to whom Enron robbed another batch of retirement funds. At the end however, Lay, Skilling and Fastow had it worst by being sentenced in a low security prison, alone with their thoughts and bearing the losses of a company they’ve worked hard for. Even though the impact of ENRON’s bankruptcy seem to being only negative there are still some positive outcomes just like the implementation Sarbanes-Oxley Act of 2002 which is a legislation to prevent accounting fraud and misbehavior. After all the fiasco that Enron has created, there’s one person who should be considered as the real winner of the situation, Bethany McLean. The journalist always suspected from the very start that something didn’t add up at Enron’s continuous success.
The top management of ENRON wouldn’t be able to accomplish the continuous falsification of the financial information without the help of the auditing firm Arthur Anderson while it is true that the business should have considered the financial users and their well-being instead of being fed by their own greed. The auditing firm as a place filled with CPAs who committed themselves to honesty, should have known better than being an accomplice for the accounting frauds and should have devoted themselves into questioning the acts of ENRON instead of letting the temptation get through them. Moreover, the accounting system of the company violated many laws that the accounting standards set to ensure the credibility of a financial statement.