Risk Services Of Arkansas - February 2018

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What We Can Learn From Enron’s Disgrace

Anybody who knows me knows that I really enjoy reading. It allows me to constantly seek new ideas and wisdom that I can use to better navigate my life, whether that’s in my business, in my faith, or just in my everyday life. One book I reread recently (the 10th anniversary edition), though, gave me fresh perspective on some of the risks of investing in publicly traded companies. It was a fascinating deep dive into one of the biggest business scandals of our generation. “The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron” by Fortune writers Bethany McLean and Peter Elkind is a captivating look into what happens when greed runs rampant, when egos run amok, and when corporate mission statements are merely marketing propaganda. In my opinion, it is a useful read for all recreational investors or business leaders. Though I’m certainly not an investment guru, I’ve long dabbled in different kinds of investments myself, so I’ve always been interested in books or media about business and investing. One of my favorites is the CNBC show “American Greed,” which highlights high-level Ponzi schemes and corporate dishonesty and thievery of all kinds. But the Enron scandal has always been especially interesting to me, partly because of its once-hallowed status as an institution of my native Houston, and partly because of the sheer magnitude of its deceit.

an organization’s downfall: arrogance, deception, lack of interest in the stewardship of their organization, inattention to the well-being of the people that depended on them, and maybe most of all, unadulterated greed. In the end, their hubris caused everyone — all the rank-and-file employees that had put their 401(k)s into Enron stock, and all the investors who trusted in the top executives to manage the business properly — to lose everything. As a guy who tries to put my faith into practice every day in every aspect of my life, a story of such unmitigated exploitation and greed is engaging, yet frightening. It’s engaging because it really hammers home how challenging it is in business to balance the natural human need for “success” and financial gain with a dedication to effective stewardship, running your company not only for yourself, but for the good of your employees and for the good of your clients that depend on you for your goods and services. It’s frightening because I’m sure Ken Lay and the rest didn’t start out to commit a massive fraud, but day by day, one poor decision after another, they got on a slippery slope that ultimately led to devastation. That’s a lesson I need to ponder. Often.

Ken Lay, the CEO and chairman for the corporation, was a pillar of the Houston

community, tight with former President George H.W. Bush and all kinds of important figures in the Houston area and inWashington D.C. For years, as the Enron stock perpetually climbed higher and higher, he was looked up to from across the business world. But when it came out in 2001 that the company had been involved in a long list of shady accounting practices, such as offloading its operating losses to “special purpose entities” and aggressively manipulating entities like Arthur Anderson that were put in place to keep the company above board, that status came crashing down. The whole thing was revealed to be smoke and mirrors, just a show the executives put on to garner billions of dollars while defrauding investors of their hard-earned money. It’s possible that the company started with well- intentioned business savvy, but the book quickly becomes a cautionary tale. Though Enron was backed by a beautiful, sparkling mission statement and set of values, it was evident that it was all a charade — ethics and conscience rarely, if ever, entered into the equation. And certainly, Ken Lay, Jeff Skilling, and Andy Fastow were highly intelligent people, but just like the title states, their initial success made them so arrogant that they truly believed they were the smartest people in any room they walked into. They exemplify many leadership traits that I believe will lead to

–Brad Johnson

President, Risk Services of AR Specialized Insurance Programs For Specialized Industries. • www.insurica.com • 1

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