The lessons we could have learned from Enron


It was supposed to be the scandal that changed everything, yet it taught us nothing.

A decade ago, as Enron slid toward bankruptcy, it seemed almost impossible that the seventh-largest company in America could wither so quickly.

Disbelief gave way to outrage. Thousands lost their jobs, and we vowed that, if nothing else, it wouldn’t happen again. Congress passed the Sarbanes-Oxley law to increase corporate accountability. And then, we moved on.

Enron, though, wasn’t to be forgotten so easily. One of the greatest business failures in American history turned out to be merely a preamble to the financial crisis, a far more spectacular catastrophe that took Enron’s fantasy of reward without risk to the global galactic level.

Sifting through the rubble of the mortgage meltdown revealed the skeletons of Enron. Wall Street bankers had copied the notorious off-books partnerships tested at the Houston company and used them to hide billions of their own derivatives liabilities from investors. They believed, as Enron executives did, that risk could be engineered to disappear.

After Enron, businesses decried Sarbanes-Oxley. Regulation had gone too far, they said. The law never has been implemented fully. Now, it has been eclipsed by Dodd-Frank, the latest response to the latest crisis, and it too is under fire from businesses for being too heavy-handed.

Enron’s collapse had its biggest impact on the accounting industry. It cast a bright light on the ineffectiveness of auditors and the conflict of interest that grew as firms bolstered their lucrative consulting businesses by piggybacking on audit work.

Enron’s auditor, Arthur Andersen, was driven out of business by a Justice Department indictment related to the Enron case. Three of the remaining four major accounting firms sold their consulting businesses and submitted to the Public Company Accounting Oversight Board, a regulator that would audit the auditors.

Yet as with most of the other Enron-spawned reforms, little has changed. The recent bankruptcy of the commodities trading firm MF Global shows that auditors are no better at warning investors about risky practices than they were in Enron’s day.

“At this point, the firms are back where they were,” said Francine McKenna, who worked at two of the Big Four and now writes the Accounting Watchdog blog for Forbes. “The auditors sort of got a reprieve. Not only did the heat go off of them, but with the economy going into the doldrums again, they sort of had free rein to re-establish their consulting arms. After a little bit of time, they realized nobody was watching.”

Across the country, professors, consultants and speakers have sifted through Enron’s ashes, pondering the corruption of corporate cultures, the role of greed in decision making and the effectiveness of regulation. Some still wallow in delusion and debate whether crimes were even committed at Enron.

But all of these discussions miss Enron’s greater lesson: our eagerness to forget.

Today, a decade removed from the pain of thousands filing onto Smith Street, boxes in arms, Enron exists as a shorthand for corruption. It’s the punch line of movies, the stuff of stage parody, a collective hyperbole.

Enron’s philosophy, such as it was, didn’t just destroy a company. Seven years later, it almost destroyed the entire economy. Now, as then, we choose to forget, we rationalize, we settle into comfortable arguments so we can move on.

What we haven’t done is learn.

Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at His blog is at Follow him on his Facebook fan page and on Twitter at

Categories: General
Loren Steffy

7 Responses

  1. Mojitos4All says:

    The biggest outrage IMHO is that this article has only gotten a handful of responses, yet the latest Britney-Lohan debacles get so much more attention.

  2. adro says:

    Until we fix the risk-reward relationship, this will continue to happen. The penalty for the highest levels of corruption need to involve minimum jail sentances up to and including life in prison or lethal injection. All assets, including retirement holdings and homesteads need to be repossesable in the case of corruption. Make these two things law, and your problems will stop. Unfortunately, no politcian has the gall to kick his best financial supporters in the b@lls, so nothing will change. Maybe we should be investing in stocks that actually manufacture or make a product instead of these traders or service companies?

  3. Pat says:

    We should have regulations to TRY and prevent something like Enron from happening again. Oh wait, regulation is socialism.

  4. Dr. Dave says:

    Enron taught lessons that were not learned. The most important is that MBA accountant types have never manufactured any real products, only lies. Witness the garbage mortgage packages and credit default swaps in the real estate and financial markets after Enron.

  5. Lucille Gallman says:

    I am a former employee of Enron and lost for me, a lot of money. I appreciate the Chronicle’s summary of what happened. I think Lea Fastow’s sentence was extreme compared to what others received. Looking back, Enron had some good ideas. Many of their company cars ran on natural gas and their broadband ideas were logical. When Enron ceased to be a fun and fair place to work, I left, but I held on to my stock. The thing I regret from my Enron experience is that I lost trust in major institutions.

  6. louis tessier says:

    what a failure of the da’s office. they should all still be behind bars or under the jail. they are all still on top of their game and not hurting. who got paid off? politics at its finest.

  7. sammy says:

    i learned them, you didn’t?