ENRON: THE COMPANY & THE PEOPLE• 7th largest company in US and largest buyer/seller of

natural gas and electricity• Heavily involved in Energy brokering, Electronic

energy trading and energy services• Awarded “America’s most innovative company” for

six consecutive years• Enron's stock was priced at $83.13 in 2000• Market capitalization exceeded $60 billion• Kenneth Lay : Chairman of Enron• Jeffrey Skilling : CEO of Enron• Andrew Fastow : CFO of Enron

ENRON : THE SCANDAL• Enron reports a $618m loss, its first quarterly loss• October 22 2001

Enron shares loses a fifth of their value.• November 8 2001

Enron says it overstated profits dating back to 1997 by $600m.

• December 2 2001Enron files for bankruptcy, the biggest in US history

• 20,000 employees lost their jobs and medical insurance• In 2001, employees lost $1.2Bn in retirement funds• Average severance pay: $4500• Top executives were paid bonuses totalling $55M and

cashed $116M in stocks

“Just as character matters in people, it matters in

organizations”

GREED

“Ethics and integrity are at the core of sustainable long term success” 

SURVIVAL OF THE FITTEST• Rank And Yank!!• Ruthless work force• Aspired to be “world’s largest company”• Two Oil traders encouraged by Kenneth Lay

to gamble rather stopping them• Jumped every possible Ethical Fence• The only Aim being- to maximize stock Prices

howsoever

PERCEPTION OF “All is Well”

• Cooked books• Phony Companies• Inflated profits• Mark-to-Marketing Accounting• Wild Gambling• Extensive PR Campaign/Media

Exaggeration

HOW DOES WORK CULTURE AND VALUE SYSTEM OF THE COMPANY DRIVE THE EMPLOYEES’ PSHYCE?

• Risk Taking behavior• Legends/Stories• Incentives/Commissions• INFLUENCE OF CEO/LEADERSHIP

SYNERGY BETWEEN THE GOVERNMENT,BANKS AND ENRON

• Donations to Political Campaigns• Close relations with George W.Bush• Pushed for Deregulation in energy sector• Ignorance by Banks• Banks did not scrutinized Enron’s books

which even a CA student would have figured out

WHAT HAPPENED TO THE PEOPLE INVOLVED IN THE SCAM?

• Kenneth Lay indicted by a grand jury on 11 counts of securities fraud and

related charges died while vacationing in Snowmass, Colorado, on July 5, 2006

• Jeffrey Skilling Criminal Charges : Conspiracy, securities fraud, false statement,

insider trading 24-year, four-month prison sentence at the Federal Prison Camp

(FPC) On May 8, 2013, federal prosecutors announced a sentencing

agreement that reduces Skilling's sentence by 10 years, making him eligible for release in 2017

• Andrew Fastow Entered into a plea agreement with a maximum penalty of 10 years

in prison forfeiture of US$23.8 million in family assets, on September 26,

2006 sentenced to six years, followed by two years of probation

SATYAM SCAM :The Enron Of India

AGENCY PROBLEM

• “Refers to a conflict of interest between a company's management and the company's stockholders”

CORPORATE GOVERNANCE“The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stakeholders”

• Report of Committee appointed by SEBI under the chairmanship of Shri Kumar Mangalam Birla on Corporate Governance

• Clause 49

RECOMMENDATIONS BY COMMITTEES

• Mandatory Applies to listed companies with paid up capital of Rs 3 crores and above Composition of Board of Directors- Optimum combination of Executive and

Non Executive Audit Committee Board Procedures Management Discussions and Analysis Report Information sharing with shareholders

• Non Mandatory Role of Chairman Sale of whole or substantial part of the undertaking

THANK YOU