Enron and the Crux of Credibility

I spoke with someone the other day who had no idea about the “Enron” I referenced in conversation. And although most of the group did recognize Enron, few knew about Arthur Andersen. Whether you recognize both names or have no idea what I’m talking about, here’s a refresher on the infamous scandal that toppled them both:

Energy Empire

Enron was an energy company, specializing in natural gas in its earlier history. It rapidly expanded in the 1990s, going beyond the natural gas market into electricity, pulp paper, even broadband communications, racking up record profits along the way. By the turn of the millennium, Enron was the darling of the stock market with a sky-high valuation of $90/share price, and recognized as one of the world’s most admired companies by Forbes.

The Fall (and Fallout)

In October 2001, news leaked that Enron had been cooking the books. Through a series of complicated accounting tricks, destroying evidence, and other generally shady business dealings, Enron had vastly overstated its revenue for years. A month later, Enron collapsed, and over 20,000 employees found themselves both out of a job and burdened by a rapidly-tarnished company brand. Anyone holding onto Enron stock was devastated financially: the rapid fall of a $60B company to worthlessness meant that Enron’s $90/share price tanked to pennies on the dollar in the span of a year.

What about Arthur Andersen? Well, it turns out that the “destroying evidence” part of Enron’s shady business was perpetuated in part thanks to its auditor, Arthur Andersen, one of the “Big 5” auditors. In the aftermath of Enron, Arthur Andersen’s deceit dealt it a permanent blow to its reputation. Many young workers now only know about the “Big 4” accounting firms (Deloitte, EY, KPMG, and PwC). Arthur Andersen the brand is now long gone, but part of the business survives; its consulting branch spun off and expanded significantly, now operating under the name “Accenture”. If you didn’t recognize Arthur Andersen, perhaps you recognize its legacy.

In the end, this is a story of fraud, lies, and the consequences of actions. Several execs were convicted of fraud and sent to prison, two businesses worth billions went bust almost overnight, and over 100,000 people (20k at Enron, 85k from Arthur Andersen) found themselves unemployed just as fast.

Moral of the story: lose your credibility, lose your business.

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