A emblem glows in entrance of the brand new company headquarters of the Houston-based power buying and selling agency Enron November 29, 2001 in Houston, Texas.
James Nielsen | Getty Photographs
The chapter of Enron on Dec. 2, 2001, spawned an epic scandal, practically two dozen prison convictions and sweeping authorities reforms. Enron turned a permanent image of company fraud.
However 20 years later, a number of consultants, former firm insiders and others say the legacy of Enron deserves one other look. They are saying the corporate that was repeatedly hailed as America’s “most revolutionary” really was a pioneer in companies we take without any consideration as we speak, from power buying and selling to streaming video.
Amongst these defending Enron’s legacy are the daughter and son of the corporate’s founder and former chairman, Kenneth Lay. A federal jury convicted Lay in 2006 on 10 felony counts, however as a result of he died of a coronary heart assault six weeks later — earlier than he may enchantment — his convictions had been vacated.
“Earlier than 2000, Enron was one of many largest renewables builders and operators on the earth (photo voltaic and wind primarily), the primary main US Power firm to endorse cap and commerce for CO2 credit, had focused recruiting packages at traditionally black schools, actively promoted girls and minorities to senior positions and the board and dedicated greater than $28 million to fairness investments in underserved communities and entrepreneurs,” stated Elizabeth Lay, an legal professional who labored on her father’s protection group, and Mark Lay, a former Enron vp, in an announcement supplied solely to CNBC.
“The mannequin was easy, rent the neatest folks you could possibly discover, give them capital and handle the again workplace for them so they might construct new markets,” the Lays stated.
Stephen Webster, a former govt in Enron’s worldwide division, described a high-pressure, sink-or-swim tradition.
“I’d let you know it was in all probability among the finest jobs I ever had,” he stated. However wanting again, Webster stated, he doesn’t remorse the stress. “We had been charging into new markets. We had been doing new issues.”
Ravi Kathuria, a former director of technique in Enron’s retail power unit, Enron Power Companies, described a tradition the place staff got a exceptional quantity of autonomy — one the place bosses by no means referred to as to ask what staff had been doing or how they had been doing. Staffers had been anticipated to profit from the liberty.
“Enron fostered innovation, and it fostered an surroundings the place everybody inside the corporate acted nearly like an entrepreneur, your individual inner entrepreneur, and also you had been answerable for your future,” he stated.
Even a few of Enron’s harshest critics concede that the corporate was a pioneer.
“Did Enron revolutionize buying and selling for pure fuel and electrical energy? With out query,” stated Ed Hirs, an power fellow on the College of Houston, who served as a marketing consultant to the Justice Division’s Enron Activity Pressure. Hirs helped prosecutors craft their instances towards Enron executives. “They had been pioneers, and so they introduced efficiencies and transparency to the markets for these economies. It was actually unbelievable.”
Within the Nineties, Enron remodeled itself from a stodgy pure fuel pipeline firm to a company dynamo due to an innovation often called the Fuel Financial institution, developed by a McKinsey marketing consultant, Jeffrey Skilling. He would go on to turn into Enron’s CEO, and he would later serve the longest jail time period — 12 years — of any Enron govt. However the prices towards Skilling — together with fraud, conspiracy and insider buying and selling — had just about nothing to do with Enron’s buying and selling mannequin, which stays in use all through the business as we speak. Skilling declined to remark.
Capitalizing on the deregulation of the pure fuel business, Enron set itself up as an middleman between fuel pipeline operators and prospects corresponding to utilities, taking its personal minimize within the course of. It tailored the idea to electrical energy as nicely.
By 2000, Enron’s final full yr as a public firm, the division that included the buying and selling operations accounted for greater than 90% of the corporate’s $100 billion in income. The corporate’s web buying and selling platform, often called EnronOnline, reported processing greater than $336 billion value of transactions that yr, making it the world’s largest e-commerce market on the time.
Whereas Enron’s buying and selling operation had little to do with the corporate’s accounting scandal, the unit’s successes created incentives for difficult accounting within the buying and selling unit and elsewhere within the firm, Hirs stated.
“As they introduced transparency and liquidity to the market, the margins — the gaps between the bid and the ask — diminished,” Hirs stated. “And so, it is very, very tough for them to ever proceed to report revenues growing and earnings growing.”
However, Hirs stated, the enterprise mannequin itself was sound in the long term.
“Had they not coated up the truth that they actually weren’t making any cash, they’d nonetheless be right here,” he stated.
And in a way, they’re. Enron alumni are scattered all through the business at corporations that purchase and promote pure fuel utilizing the identical ideas as Skilling’s Fuel Financial institution.
Enron would attempt to replicate the success it loved with pure fuel in different markets, with combined outcomes. It turned a pacesetter in electrical energy buying and selling, although three Enron merchants pleaded responsible to manipulating the market in California throughout an influence disaster in 2000. Nonetheless, the enterprise itself was sound. And a few, together with the Federal Power Regulatory Fee, argued that a lot of the blame belonged to California for growing a system that might be gamed within the first place.
“Important provide shortfalls and a fatally flawed market design had been the foundation causes of the California market meltdown,” wrote FERC staffers in a 2003 autopsy.
Kenneth Lay speaks throughout an interview in his workplace on the firm’s headquarters February 5, 1996 in Houston, Texas.
Paul S. Howell | Hulton Archive | Getty Photographs
Enron’s try and work its magic on the nascent broadband market within the ’90s was maybe essentially the most problematic, despite the fact that it helped form the way in which we talk and devour content material to this present day.
The concept was to purchase and promote web bandwidth the identical manner the corporate was buying and selling pure fuel. And to assist guarantee demand, Enron Broadband would supply companies together with videoconferencing over the web — an early model of cloud computing — and even streaming films on demand in a three way partnership with video rental chain Blockbuster. These improvements occurred many years earlier than Zoom and Netflix turned family names.
“We stated there’d be a brand new medium,” stated F. Scott Yeager, a former director at Enron Broadband who labored on the brand new applied sciences. “The brand new medium can be the mixture of streams, and interactivity and dynamic content material based mostly on databases which might be consumer experiences that had been distinctive.”
Forward of the sport
However with the collapse of the dot-com bubble, Blockbuster’s incapability to license important content material from Hollywood studios, and an enormous glut of bandwidth, the broadband division by no means lived as much as Enron’s lofty targets. Allegations that the corporate tried to cover that from traders turned central to the prosecution — and responsible pleas — of a number of Enron Broadband executives, in addition to a part of the case of Skilling, the previous CEO.
Yeager was accused of inflating the worth of Enron inventory by hyping know-how that prosecutors alleged didn’t work. However a jury acquitted him on conspiracy, securities fraud and wire fraud, whereas deadlocking on some 20 counts of insider buying and selling and 99 counts of cash laundering. When the federal government sought to retry him on these counts, Yeager took his case all the way in which to the Supreme Courtroom and gained.
“Our community was actual, sure, every thing we did was actual. And the infrastructure was actual,” Yeager stated.
However 20 years later, prosecutors who labored on the investigation nonetheless say broadband was typical of a sample at Enron of being just a bit too far forward of its time, and never leveling with traders when gambles failed.
“Broadband could nicely have been a genius, sensible concept, however it wasn’t prepared for prime time. And within the meantime, they tried to money in on it anyway,” stated Leslie Caldwell, the primary director of the Justice Division’s Enron Activity Pressure. Caldwell would go on to go the division’s prison division in the course of the Obama administration. In the present day, she is a companion at Latham & Watkins in San Francisco.
“I am not saying that they did not have any good concepts or do something, however they tried to monetize issues earlier than they had been actually prepared,” she stated.