A hands-off manager and a business visionary, he saw opportunity in the rapid deregulation of energy markets in the United States and around the world. He attracted subordinates who wanted to seize these opportunities, the two most influential were Rebecca Mark and Jeff Skilling.
President of Enron.
He had worked under Lay at Houston Natural Gas.
A tough, prudent businessman who kept a tight handle on expenses.
the perfect person to oversee the cash-generating pipeline system and gradually pay down the firm's debt.
Mark VS Skilling
Mark was globetrotting around the world, acquiring or building power plants and related projects. Skilling was modeling ECT as an investment bank of sorts for the energy industries. Their competing visions came to be known as "asset heavy" and "asset light." Mark promoted the acquisition of physical assets. Skilling promoted the use of Enron's balance sheet for intermediating deals.
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Rebecca Mark 
She had come to Enron from Houston Natural Gas.
During the late 1980s, she worked in the electric power division, learning how to negotiate international power generation projects in a market that was just beginning to attract investors
After taking two years off to earn a Harvard MBA, Mark convinced Lay to let her form an international division that would pursue more energy projects around the world.
Enron Development Corporation was formed in 1991 with Mark as CEO. In 1993, this would become Enron International.
Bits and pieces of Mark:
For years, Mark seemed to be successful. She and her team of deal makers fashioned themselves as missionaries of privatization. They were closing deals, but the actual profitability of those deals would not be known for years. Employees-and especially Mark-stood to earn enormous bonuses just for closing deals. Many of those deals would later come back to haunt Enron.
By far, Mark's biggest deal was a two-stage power project that she built in Dabhol India. The first stage burned oil. The second, larger stage burned liquefied natural gas (LNG). LNG is an expensive fuel, so output from the plant would be four times as expensive as other electricity available in India. India had widespread poverty. Much of the electricity produced in India was stolen. The government never cracked down on theft for fear of a popular backlash. The World Bank refused to support the Dabhol project, claiming that it made no economic sense. There was widespread popular opposition to the project, so Mark had her political work cut out for her. When Indian protestors were forcefully dispersed from the building site, Enron was accused of human rights abuses. With fits and starts, the project moved forward, only to collapse in 1996, when India's Congress Party was voted out of office.
Mark worked tirelessly to restart the project, flying back and forth between Houston and India. Lay recruited the involvement of the Clinton administration, which actively pressured the new Indian Government to restart the project. After some renegotiation, the project was relaunched. Enron's deal with the Indian government required the state-owned electric utility to buy power from the Dabhol plant whether it was needed or not. By some estimates, the utility would have to make payments totaling USD 30 billion over the life of the project.
For Mark, the project was a stunning success, generating fame and enormous bonuses. In 1998, she made the cover of Forbes magazine. She was appointed to the Board of Overseers of Harvard Business School and the Advisory Board of Yale's School of Management. Enron proxy statements indicate that her combines compensation for 1996 to 1998 was USD 25.7MM.
Enron had been toying with the idea of developing a water trading market, and she perceived this as her opportunity. she purchased Wessex Water, one of England's most profitable water utilities. She paid USD 2.2 billion, a 30% premium over the utilities market capitalization. Her new water venture was called Azurix.
To keep its debt off Enron's books, a number of outside investors were found to form an SPE, Marlin Water Trust, to take a 50% stake. Mark started acquiring more assets. The biggest, after Wessex Water, was a 30 year concession to provide water and sewage services to 2 million residents of Argentina's Buenos Aires province. The concession was awarded in a bidding process in which Mark paid USD 439MM, three times the second highest bid.
Always on Time
Marked to Standard
Mark was determined to take Azurix public. This would give her an independent company far removed from Jeff Skilling. In June 1999, she floated a third of the company at USD 19 per share, raising USD 695MM.
Water could never be traded the same way. Water is a localized business that lacks the continent-spanning pipelines and transmission systems that allow natural gas, oil and power to be moved and traded between locations. Utilities made money by cutting expenses to the bone, but Mark was oblivious to this hard reality. She ran Azurix as if money was never an issue. She overpaid for acquisitions and spent lavishly on office space, salaries and travel.
At the same time, her acquisitions were turning sour. In Argentina, Azurix discovered that its new acquisition did not include the home office, staff or billing system of the existing utility. Thousands of billing records were mysteriously missing, which meant people would be receiving water, but Azurix would have no idea who they were or where to send bills.
In November 1999, UK regulators ordered a 12% cut in the prices Wessex could charge customers. That same month, Azurix cut its staff by a third, incurring a one-time hit to earnings of USD 30MM. In August 2000, Mark resigned as Chairman and CEO of Azurix and left Enron for good. She sold her Enron stock, netting an estimated USD 82MM. Enron would later buy back outstanding Azurix stock at USD 7 per share. The Argentina investment would be written off. In 2002, Wessex Water would be sold to a Malaysian company for a fraction of the price Enron had paid.
He earned a Harvard MBA in 1979.
He became a consultant for McKinsey  where he advised Enron on how to manage its gas pipeline in the rapidly deregulating US natural gas market.
He came up with the idea of forming a "gas bank" that, much as a financial bank does with capital, would intermediate between short-term and long-term buyers and sellers of natural gas.
The gas bank would be named Enron Gas Services, and later, Enron Capital and Trade Resources (ECT).
In August 1990, Enron Finance Corp was formed and Skilling was hired away from McKinsey to be its CEO.
Bits and Pieces of Skilling
While Mark was launching the Dabhol project, Skilling was back in the United States pursuing his "asset lite" strategy. Following on the heals of his success of the gas bank, he launched ECT into natural gas trading, creating an active market where none had existed. Deregulation in the United States opened the door for electricity trading, and ECT jumped in. By the mid 1990s, it had 200 power marketers working out of two trading floors in Houston. In 1995, Enron hopped the Atlantic to open a London office to trade power and natural gas. The firm would soon become a dominant force in European energy markets. Skilling started exploring new markets in which to apply the "Enron model." These would come to include: weather, paper pulp, plastics, and metals.
Skilling also set his sights on retail electricity markets in the United States. These were deregulating more slowly than the wholesale markets, but the vision was for residences to some day choose an electricity provider in the same way they chose a phone provider. This vision never panned out, but, for a time, Enron devoted considerable resources to building brand awareness. Television ads ran in several markets displaying the Enron company logo and promoting Enron's innovative spirit.
Skilling was also working to outmaneuver Mark. He arranged things so that ECT would provide financing to other divisions of Enron, including Mark's Enron International. If Skilling tried to block Mark's financing, Mark could always go directly to Lay or raise financing outside Enron. Still, Skilling's strategy enabled him to slow Enron International and give him a context to criticize Mark's heavy spending on projects.
Mark-to-market accounting to ECT's trading books
Skilling's vision was to trade energies and other commodities the way Wall Street trades capital. In 1991, he convinced Enron's Audit Committee to allow him to apply mark-to-market accounting to ECT's trading books. For liquid trading activities, mark-to-market accounting is appropriate and far superior to accrual accounting. It is widely used in the capital markets. In Enron's case, it wasn't always appropriate.
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Many of the markets ECT was trading in were not liquid. Enron was launching those markets. ECT was entering into long-dated gas and power deals for which no liquid markets existed. In this context, mark-to-market accounting became mark-to-model accounting. Traders who were performing trades had considerable influence in how the deals were marked to model. With their bonuses depending upon the profitability of deals, there was an unaddressed conflict of interest. Skilling's trading businesses were generating considerable profits, but much of these were dubious mark-to-model profits on long-dated deals.
That year, Kinder had a falling out with Lay over a situation involving Lay's assistant, Nancy McNeil. Kinder and McNeil left Enron and were married soon after. Lay tapped Skilling to replace Kinder as President and COO. Now Skilling was in line to eventually replace Lay as CEO. Mark remained a significant force within Enron, but Skilling was consolidating his position, promoting a circle of cronies into senior positions. In Ken Lay and Jeff Skilling, Enron now had two business visionaries at its helm, but there was no one to replace Richard Kinder's prudence.
Performance Review Committee (PRC)
Skilling established a harsh corporate culture that pitted employees against each other, constantly weeding out non-performers or the politically isolated and replacing them with new hires. Central to his scheme was the performance review committee (PRC), also known as "rank and yank." Skilling had long employed PRC in ECT, but now he implemented it company-wide.
Every six months, every employee's performance was reviewed by a committee of managers. Employees were rated on a scale of 1 to 5, with 5 being the worst. It was required that 15% of the entire workforce be rated a 5 in each PRC. These employees were "redeployed." They were moved to a separate area of the company, given a desk, phone and computer and granted several weeks to find another job within Enron. After that, they were let go.
But, managers on the PRC frequently wouldn't know the employees they were reviewing, so other employees would submit written feedback. Each employee could ask five associates to submit letters commenting on his performance, but anyone else could submit unsolicited comments as well. The process was extremely political. Employees could undermine each other by submitting negative comments. Employees would enter into deals with one another to submit good reviews. Managers would horse trade. If one wanted to eliminate more than 15% of his staff and another wanted to keep most of hers, they might collude. Managers used the PRC to reward friends, and all employees were under pressure to enlist a senior manager as a protector.
The PRC undermined risk management within Enron. Complex deals and mark-to-model valuations had to be approved by risk management. Risk managers knew that they would suffer in the PRC if they blocked deals or did not support favorable mark-to-model valuations. Risk management became little more than a rubber stamp and a stepping stone for employees moving around the company.
Andrew Fastow, Fall Guy
He was a 1986 MBA from Northwestern University.
He worked at Continental Bank doing asset securitization deals before joining Enron in 1990.
There, he worked on Enron's initiative to enter retail electricity markets.
He befriended Skilling, and was appointed Enron's CFO in 1996 at the age of 37.
Enron had formed a limited partnership with the California Public Employees' Retirement System (Calpers), an enormous and highly influential pension fund. Called the Joint Energy Development Investment Limited Partnership (JEDI), the partnership invested in natural gas projects. Participation of Calpers meant that JEDI was an independent entity from Enron. Enron earned profits from the partnership, but none of JEDI's debt appeared on Enron's balance sheet.
Enron wanted to launch a new and larger limited partnership called JEDI II, but it thought that Calpers would be loath to invest while it was still invested in JEDI. Enron couldn't simply buy out Calpers investment in JEDI, which was worth USD 383MM. This would make Enron the sole investor in JEDI. JEDI would no longer be independent, and its debt would have to appear on Enron's balance sheet. Fastow proposed forming a new venture, called Chewco Investments, to take Calpers place as an investor in JEDI.
P.S. Enron's culture was heavily influenced by the movie Star Wars. Employees referred to the corporate headquarters as the "Death Star." The name JEDI was no coincidence. The new partnership's name was a reference to the Star Wars character Chewbacca.
The Fraud of Chewco
By replacing Calpers as an independent investor, Chewco would allow Enron to keep JEDI's debt off its balance sheet. This would only work if Chewco were also independent from Enron. Rather than find a truly independent investor for Chewco, Fastow decided that one of his subordinates, Michael Kopper, would play the role of independent investor in Chewco. This was ridiculous. Kopper didn't have the personal resources to make such an investment.
Fastow's solution was an elaborate scheme involving multiple special purpose entities and a direct investment by JEDI of USD 132MM in Chewco. JEDI was investing in Chewco so that Chewco could invest in JEDI. Except for USD 125,000 put up directly by Kopper and his domestic partner, William Dodson, all of Chewco's funding originated either from Enron or as loans guaranteed by Enron. Enron's board approved the Chewco deal without knowing the details of Kopper's role or specifics of how the deal was financed. Enron treated Chewco as an independent entity for accounting purposes, but it wasn't.