Steffy: Why Enron is still with us


Business, like Houston, rarely uses a rearview mirror, so the anniversary of Enron’s bankruptcy filing, 10 years ago today, passes with a whiff of irony.

In our haste to look forward, to strike the crooked E from the city’s collective psyche as surely as it was plucked from the sidewalk on Smith Street, we inadvertently reinforce one of the more subtle yet important warnings wrapped in Enron’s failure.

Peeling back the fraud, the hubris and the wretched excess, stripping away the corruption of the lawyers, accountants and internal safeguards, Enron’s failure underscored the dangers of the short-term view that still pervades American business. Enron, fundamentally, was a company that lived for the moment.

“They never were seriously interested in a culture of integrity,” said Stephen Arbogast, a University of Houston finance professor who wrote a book on Enron’s culture of corruption and has used it as a case study in his classes for years. “They were interested in a culture of short-term gain.”

The pressure to meet quarterly earnings forecasts, of course, had been building long before Enron failed. The dot-com boom that preceded its collapse heightened the urgency for short-term gain.

Rules had changed?

Enron was no dot-com, but like the tech startups that littered the market at the time, it argued the rules had changed.

It struggled to find growth in new markets, to replicate its earlier success with natural gas trading. It hid its failures, and as it grew more desperate, it pushed employees to close big deals fast. Their long-term value didn’t matter as much as the momentary hype that would prop up Enron’s veneer of growth.

As those deals proved unprofitable, Enron’s financial engineers came up with ever more elaborate schemes to meet those all-important quarterly profit goals. Eventually, its income statement reflected little more than cartoon accounting.

“The issue was: ‘How do we keep the image up?’ And the answer was manufacturing earnings,” Arbogast said.

As a result, Enron came to embody the dangers of short-term corporate thinking taken to its extreme. Since its demise, some companies reined in rewards and created longer-term incentives. But they and their investors remain beholden to the quarterly benchmarks.

Today, the thirst for short-term gain is strongest among the investment banks, the heirs to Enron’s culture of corruption.

“That’s the piece of the Enron story that carries over to the financial community,” Arbogast said. “The money for the bankers is so big, they’re so acculturated to the idea that they can make so much money in the short term that the long run really doesn’t matter.”

Even now, after spawning a global economic crisis with its shortsightedness, Wall Street lobbies against regulations that would prevent restrictions on its riskiest practices because those rules would impede short-term profits.

Creating cheaters

“Until we change the incentives for people meeting their quarterly projections, we are going to continue to create cheats,” said Nancy Rapoport, a law professor at the University of Nevada, Las Vegas, who closely followed Enron’s failure and also wrote a book about it.

We don’t like to look back, but we don’t have to. Enron is with us still, a phantasm of expediency. It’s a reminder of how easily greed and hubris can overwhelm integrity, of how even good people can convince themselves that wrong is right when facing the prospect of a big, immediate payoff.

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

Loren Steffy

12 Responses

  1. flypusher says:

    Contrary Dave wrote: “You can be smart and stupid at the same time.”

    So true, and when smart people do something stupid, it is often quite spectacularly stupid. Getting all wrapped up in your own cleverness is a common first step down that road.

  2. Art Vandeley says:

    @DanXMcGraw; Thank you!

  3. TruthSeeker says:

    I have no idea with this means: “completed the final weeks of 5-year, 6-month sentence this year at his Houston home” ;-) How many are the ‘final weeks’?

    These thieves are only the ones that got caught, look at their punishment and compare that to the rewards that they got. The reward far outweighs the punishment, which insures these behaviors will continue.

  4. Captain Cook says:

    Oh and the mastermind behind the entire fall of Enron is still running around Houston blameless. He was the lead Enron contact and partner at Arthur Andersen who was hired away from Arthur Andersen by Dynegy, fed information to Dynegy from Enron, orchestrated the analyst caller that pushed Skilling to lose his temper during the quarterly conference call. The instructed the analyst to pester Skilling about why the financials of every other company in the world had to be turned in by a certain date but Enron was exempt. Skilling kept trying to make excuses about how complicated the companies were but the analyst continued to pester to the point where Skilling called him an asshole and embarrassed himself and Enron publicly. That was the beginning of the very end.

  5. Captain Cook says:

    Sadly, the money these crooks spent on attorney’s fees could have paid the shareholders back. I lost my entire life’s savings as did so many because we were too busy working. Skilling changed administrators and locked us all out of our funds so all we could do was watch our life’s work bleed away. After his resignation, we were all greeted with a bag of Lays potato chips and a website – before we could get into our computers, we had to “LAY IT ON THE LINE” for Ken Lay. Tell him what was wrong. I wrote and wrote and so did many others. Unfortunately, none of that was found during the kangeroo trials. Will I ever make up what I lost so I can retire someday? That is my goal. I wouldn’t trade the people that I met, the opportunity I had, or the things that I learned for the money I lost. Enron was an experience I’ll always treasure and try to forget the most horrifying day of my life on December 5th 2001 when I lost the best job I ever had.

  6. MikeyLikey says:

    Most of the employees were snobs? I totally disagree. Many traders, deal structurers and high-level management were definitely snobs. There were many many employees who were down-to-earth, intelligent, hard-working employees who did nothing wrong. They, like myself, worked for what they thought was a great company with great people. It turned out to be a great experience followed by an even greater disappointment.

    • Dan X. McGraw says:

      Mikey, I deleted the comment calling Enron employees snobs. It went over the limit, and it should have been flagged earlier.

  7. Dr. Dave says:

    The statement “the corruption of the lawyers, accountants” says it all. Lawyers and accounts have never, not will they ever produce a physical product. It is beneath their “intelligence as they don’t want to get their hands dirty.

    The only way to stop this continued madness is to give the perpetrators lengthy prison sentences and confiscate all of their ill gotten gains along with fines that are so huge that they will never be out of debt.

  8. JB says:

    Most of Enrons’s frauds were alleged to be either designed in consultation with a law firm or the law firm allegedly reviewed the deceptive business and financial structures for legal defensibility . There was alleged to be a full partner whose primary job was to make sure that Ken Lay incurred no personal liability as the result of Enron Corp.’s malfeasance. It is alleged that this law firm got off without a scratch and it is alleged that it remains a major Houston and US law firm allegedly continuing to give legal advice on allegedly deceptive business practices.

    What is not alleged but is a matter of record is that many of the major players at Enron, its accounting firm, and its law firm were graduates of Ivy League and “top tier” law schools and business schools. Prisons are full of these types, both businessmen, lawyers, and politicians. That is what they train there, clever thieves…too clever by half, mostly.

  9. Contrary Dave says:

    Culture of stupidity is more apt than culture of corruption. You can be smart and stupid at the same time.

  10. Contrary Dave says:

    Article should have been titled why Baldwin-United is still with us. Decades ago Baldwin United was leasing computers with a ten year fixed price contract, booking the discounted future earnings stream immediately. One little hooker, the leases had a 5 year out. Who wants a 5 year old computer. Result, the customers opted out and the discounted earnings streams turned into discounted loss streams and Baldwin United went bankrupt.

    Enron was just a variation on this theme of booking earnings that may not come about. To make matters worse, they were based on forward price curves which could turn on you tomorrow. Plus you create an internal Ponzi scheme because you can’t do an ever increasing number of deals for any length of time.

    But then there are always people who have such a run of success that they develop delusions of grandeur (the trader’s disease) and assume that if they do the deal, by definition it has no risk. Happened again with all these real dumb mortgage deals.

    But then most believe that if it hasn’t happened in my short lifetime, it won’t happen. That is why folks like Gordon Cain were successful. As he put it at an Economist’s club meeting, he secret to success was being old.

    Simple answer is to ban running future earnings through the income statement and putting on the front page of the annual report the actual cash taxes paid to Uncle Sam and others. Huge earnings and no real cash taxes are a dead giveaway that there will be a piper to play.

    And amen to the short term focus. Now interview Rich Kinder and find out how you avoid that ultimately destroying your company.