Enron the smartest guys in the room analysis

Here are a few takeaways:ДЎ) The behavior you want out of others isnвЂ™t the behavior you talk about, but the behavior you reward. What The Smartest Guys in the Room achieves is to dissect the corporate culture that allowed this sort of behavior to be rewarded. Since they had to hide the debts incurred from the boondoggle from the stock market, EnronвЂ™s CFO would sell the debt to a shell company, and declare another profit.В Eventually, of course, the ponzi scheme came crashing down. India would never pay for the unbuilt power plant, so the projected cash flow never actually came in. But the actual power plant would never get built! After all, no Enron executive would see his stock options increase if he spent his time trying to get a construction project done. Enron would then estimate the projected income generated from the power plant over the next few decades, declare that as profit, trade the contract on the market, see the stock rise and celebrate a payday. But no one was making sure that the contract was actually fulfilled.ДЇor example, Enron might sign a contract to build a power plant in India. The contract went on the books as income (even if a dime had not been paid), causing the company stock to go up, which generated huge paydays for the executives who were paid in stock. Employees and executives were encouraged to land contracts which would be promptly traded away. But Enron was so successful that the contract trading came to dominate the company to the point that it ceased to provide вЂњrealвЂќ services. It was a good idea that transformed the energy markets in the US. As a side business, Enron would sell the long term contracts as if it were any other commodities future. Buyers loved the stability, and sellers needed ready cash to develop new claims. Here is a quick review of the Enron scandal: Enron grew from a pipeline company to an economic powerhouse by playing the middle man, selling long term gas contracts to buyers for a fixed price and paying cash upfront to gas suppliers, thereby reducing the risk associated with the wild fluctuations in natural gas prices. The Smartest Guys in the RoomВ recounts the rise and fall of Enron, the spectacularly fraudulent energy trading company whose 2001 collapse cost investors hundreds of millions of dollars.

Enron the smartest guys in the room analysis