November 14, 2003
Wrap-Up: Watch Out for Another Enron, Author Says
by Amy Corenblith
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Enron will happen again, said Robert Bryce, author of Pipe Dreams: Greed, Ego, and the Death of Enron and the first non-CPA speaker of this semester’s Lyceum series.
“We’re not going to cure human greed,” Bryce said. Pointing to a continuous stream of financial scandals since the 1920s, including the S&L debacle of the ’80s and the Long-Term Capital Management fiasco in 1998, he told students that “it’s going to happen again, and it’s not going to take that long.”
Still, Bryce offered his take on the Enron scandal and suggested his own remedies to prevent future corporate accounting failures. In his presentation, “The Enron Meltdown in 45 Minutes or Less,” Bryce explored the faulty business transactions and shady cast of characters that brought Enron to bankruptcy.
He outlined “The Bad Bets” Enron made, including their failed broadband service, water industry and power plant in Dabhol, India. Bad deals were rewarded up front, Bryce said, so executives furiously made deals, even if they would become unprofitable and were not well thought out.
“Profits didn’t matter,” Bryce said. “Teamwork didn’t matter. The size of the deal mattered.”
In what he called “the worst case of executive piracy in American history,” Enron insiders sold massive amounts of stock before the company’s demise and misled employees and stockholders.
The infidelity of Enron’s top executives set the tone for the company, Bryce maintained. In the “Rouges Gallery” portion of his presentation, Bryce outlined the bad business practices and personal affairs that many of Enron’s high-ranking officials took part in. Ken Rice, head of Enron’s ill-fated broadband business, purchased multiple $30,000 motorcycles, while Rebecca Mark, CEO of Azurix, an Enron subsidiary, traveled extensively, around the world on Enron’s dollar. Enron squandered money, Bryce said, and these wasteful practices contributed to the company’s fall.
Other factors that Bryce blamed for Enron were the coziness of their Arthur Andersen auditors to their management teams and the lack of controls on derivatives.
“Warren Buffet once called derivatives ‘financial weapons of mass destruction,’” Bryce said. “If Warren Buffet is worried, we should all be worried.”
He suggested regulating derivatives and granting more funding to the SEC as possible roadblocks to future accounting scandals.
Publisher’s Weekly magazine named Bryce’s book one of the best nonfiction books of 2002.
Other notable soundbites
On corporate greed
“The Internet bubble, the go-go times, produced this weird
strain of greed that we haven’t seen before.”
On funding for the SEC
“They should have at least $1 billion a year. They are worth
the money.”
On writing a book about accounting
“My brother’s a CPA. I called him every day, saying, ‘What does this mean? What’s stockholder’s equity?’”
On the Sarbanes-Oxley Act
“It may give a little too much protection to whistle-blowers. For people worried about losing their jobs, they may say, ‘Well, jeez, why don’t I be a whistle-blower and they can’t fire me.’ I don’t know if that will be a problem, but it could be.”
On the fall of Enron
“Thousands of people lost their jobs. One woman, Ken Lay’s secretary, lost all her retirement money, and her husband has cancer. These people believed in Enron, believed in Ken Lay. They bought stock because Ken Lay said to. It’s sad to see these people [former Enron executives] living in River Oaks [the ritziest neighborhood in Houston] when the little people just got taken to the cleaners.”
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