Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

Deep dive on what happened at Enron

Almost 16 years after Enron declared bankruptcy in December 2001, questions about the root causes of the financial fraud and ensuing publicity of the corrupt business practices there persist. Despite the subsequent years where other major bankruptcies and the global financial crisis may have somewhat desensitized the public to these scandals from the greater business world, the many answers to the “why” of Enron’s fraudulent business practices are still fascinating to contemplate.

  • Enron: The Smartest Guys in the Room: This 2005 documentary, based on the 2003 book of the same name written by Fortune magazine reporters Bethany McLean and Peter Elkind, and directed by noted filmmaker Alex Gibney, is the seminal work on the Enron scandal. The film goes back deep into Enron’s history to unpack why its success of the 1980s and 1990s and its desire for sustained growth and competitive edge in new business areas, drove its fraudulent practices ever deeper into the corporate culture. Great attention is paid to those “smartest guys” – Kenneth Lay, Jeffrey Skilling, Andrew Fastow – and their sometimes philosophical, occasionally political, and always profit-motivated, views of management that contributed to the fraud.


  • The Crooked E: The Unshredded Truth About Enron: This television movie from 2003 is based on the book Anatomy of Greed by Brian Cruver.   Cruver was an ex-Enron employee and detailed his personal experiences there in addition to those of several anonymous colleagues, some very senior members of the organization. The movie shows how the lack of organizational integrity made an impression on Cruver, a good person who found himself doing bad things because of the unethical environment and processes in which he was working. The excesses of the corporate culture are shown in great detail and in contrast to the suffering of shareholders, including many employees who had their retirement funds entirely invested in the company, that followed the company’s collapse in 2001.


  • Enron Explained: An Insider’s Account: On a similar, but non-dramatized note, this 2006 C-SPAN American Perspectives program provides a deeper look at the workings of the accounting practices and corporate culture at Enron. This time it is from Robert Bradley, who was the Director of Public Policy Analysis at Enron. Bradley provides detail into the technical aspects of the accounting fraud as well as his personal perspective on Kenneth Lay. From Bradley’s point of view, Lay’s actions should be viewed in light of the narrow framework in which he had worked, achieving great success in his years at Enron by focusing on profit-driven business strategies that promoted driving for financial gains and did not emphasize strategic ethical decision-making. While certainly not an excuse for lack of personal accountability, or a legal defense, this is a powerful lesson for how strong organizational contexts and heuristics can impact employee integrity.


  • Bigger than Enron: The PBS documentary series Frontline took on the Enron story in 2002. This program suggests presciently that the bankruptcy of Enron, which immediately became one of the largest scandals in the history of American business, could actually have the harbinger of the deeper systemic weaknesses. From the current standpoint, of course, this points directly to the subsequent economic and regulatory crisis in the global financial markets that began to unfold in public in 2007-2008. From this perspective, the root causes of that crisis go much deeper than the fiscally unsustainable growth of the sub-prime mortgage market and subsequent securitizations. Instead, epic failures in the oversight system – from management, from government, and from outside business partners such as auditors – exposed investors to huge losses and enabled corporate fraud such as occurred at Enron and other major companies before and, indeed, after its 2001 collapse.


  • Sherron Watkins at UNC Kenan-Flagler Business School: Sherron Watkins was Vice President of Corporate Development at Enron and is known to history as the author of the August 2001 memo to CEO Kenneth Lay detailing the questionable accounting practices she noticed in the company’s financial reports. Five months later her memo was made public, and she is therefore thought of as the Enron whistleblower. Watkins was criticized in the aftermath of Enron’s bankruptcy for not going public sooner and not immediately escalating her suspicions of the fraud to Enron’s regulators or law enforcement. The speeches Watkins has given in the years since Enron’s bankruptcy, such as this one, focus on how complicated acting as a whistleblower is in reality – not what you would do better than someone else in a hypothetical situation, but what you would or could actually do if it happened to you. This is a challenging ethical dilemma and one that organizations must consider in order to create a reporting system in which whistleblowers are encouraged and protected.


The Enron business case remains one of the most famous examples of modern corporate fraud and corruption. Studying the root causes behind the fraudulent accounting and business practices provides insight for why an effective controls and reporting framework is so important for investor protection and markets integrity.

Leave a Reply