Enron Ascending

Introduction: The Process of Enron

Enron always lived dangerously. The peril began in 1984 just months after Ken Lay took charge of predecessor company Houston Natural Gas (HNG) and grew until Enron’s bankruptcy in December 2001. What kept Enron in harm’s way during those 17 years was less unfavorable industry conditions than Lay’s conviction that extraordinary growth, tied to a grand narrative, would create an ever more dominant company.

In year 1, Ken Lay paid top dollar (and more) for two interstate pipelines, then engineered a merger based on his side’s exaggerated projection of profit. By mid-1985, the originally cash-rich HNG had become debt-laden HNG/InterNorth, a company with (in Lay’s words) “no margin for error.”

Enron would skate on thin ice in the next years, even dodging one near-death experience. But the CEO, empowered and emboldened, was looking for the type of growth that required new businesses—and new practices.

Into the 1990s, Enron’s earnings streak was the talk of the industry. But the Lay Way included a number of distinct, aggressive behaviors. Enron was entering into very large commitments that relied on educated guess and hope, not mitigated risk. Quick fixes to enlarge current earnings sacrificed the future. Important pockets of profit turned on political favor at home and on unstable, anticapitalist regimes abroad.

Still more, Enron’s fastest-growing division reported earnings that were subjectively derived, not objectively accrued. Abuse was just ahead. ...