When I saw this, I thought, wow, news from 2001. But no, it’s dated today.
A PRESSURE to do deals and make quarterly target figures by whatever means lay behind the Enron scandal, according to Stewart Hamilton, a Scottish accountancy professor at IMD business school in Switzerland.
If we are still entertaining theories about what brought down Enron, and it’s still making news, I would like to go on the record and state that a short term liquidity problem, a classic run on the bank, is what brought down Enron. The evidence bears this out.
But anyway, this report is just odd:
Hamilton, who is researching the collapse of the US energy giant, said these factors along with an absence of controls had led to the collapse. Another factor was that key company officials’ remuneration was directly linked to quarterly results. This led to a demand to “make the quarter” by whatever means.
Deals to remove debt from the company’s balance sheet had been conducted with Andrew Fastow, the finance director, despite dealing with company officials being specifically banned by the company’s code of ethics.
Hamilton said: “The drive to maintain reported earnings growth, and thus the share price, gave rise to some of the most audacious creative accounting that the world has ever seen.”
He suggests that part of the reason Enron began to overextend itself was a battle to succeed Kenneth Lay as chairman and chief executive. Jeff Skilling favoured an ‘asset light’ strategy in which the company could make more money by energy trading.
But Rebecca Mark, Skilling’s rival for the top post, favoured investment in traditional power-generating assets. The company did both, stretching its resources and worsening its financial position leading to a need to remove debt from the balance sheet.
Man. It feels like 2001 again. Sigh.
