Enron’s Infamous Decline

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By: Glenn Rifkin

In late 2000, Jeffrey Skilling, president of Enron Corporation, told this reporter that the high-flying Houston-based energy giant was growing so fast that “there is a very reasonable chance that we will become the largest corporation in
the world.”

Skilling seemed to have reason to be bullish. Under his leadership and that of CEO Kenneth Lay, revenues at the online energy trading company, formerly an obscure pipeline firm, had shot up—from $13 billion to a jaw-dropping $100 billion in four short years. The stock price had skyrocketed as well, and in February 2001, Skilling succeeded Lay as CEO.

But Enron turned out to be a house of cards, one so infamous that for a certain age group, its name is etched in memory. Having built its success on lies and cooked books, the firm collapsed with astonishing speed after the revelation that its leadership had fooled regulators with faked holdings and illicit accounting practices. Enron would file for bankruptcy in December 2001 and face a $40 billion shareholder lawsuit. At the time, it was the largest corporate collapse in US history.  

Enron’s crisis triggered a wave of prosecutions, including those of Lay and Skilling, both of whom were indicted for fraud, conspiracy, and insider trading and convicted in 2006 by a federal jury. Lay died of a heart attack before he could be sentenced. Skilling, who insisted he was innocent, was sentenced to 24 years in prison and fined $45 million.  He would serve 12 years before being released in 2019. 

Kenneth Lay (left) and Jeffrey Skilling (right)

When it cratered, Enron took Arthur Andersen LLP, its accounting firm, down with it. Andersen, one of the world’s largest accounting practices, was accused of abetting Enron’s schemes and failing to detect fraud perpetrated by the company. The firm was found guilty of obstructing justice for shredding Enron’s financial documents to hide them from the SEC. Most of its clients defected and Andersen shuttered its doors, costing 85,000 employees their jobs.

The most important lesson of the Enron scandal was to raise awareness of corporate boards’ sometimes low levels of inattention. “Boards of directors need to pay closer attention to the behavior of management and the way the company is making money,” said Kirk Hanson, the then-executive director of the Markkula Center for Applied Ethics at Santa Clara University in a 2002 interview. “In too many American companies, board members are expected to approve what management proposes—or to resign. It must become acceptable and mandatory to question management closely.”

In July 2002, the Sarbanes-Oxley Act, imposing strict compliance measures and oversight by corporate boards, was signed into law by President George W. Bush.