A History of Enron
Enron was created by a merge between Houston Natural Gas and Internorth. Houston's Natural Gas's CEO Kenneth Lay headed the merger of the two companies. Kenneth Lay became the CEO of Enron. Enron was originally solely involved with the distribution and transmission of electricity and gas in the United States. In the merger, Enron incurred a large amount of debt, and as a result of deregulation, no longer had exclusive rights to its pipelines. The company had to find a way to generate profits and cash flow. Kenneth Lay hired Jeffrey Skilling to work for Enron as an accountant. Skilling suggested the practice of buying gas from a network of suppliers and selling it to consumers at a fixed price with a contract. Enron was interested in the expansion, building, and operation of pipelines, power plants, and other infrastructure worldwide. After just a year of operation Enron merged with a company called Spectrum Seven, a company whose chairman and CEO is the former president of the United States, George W. Bush. In 1999, Enron tried to expand their company by creating the Azurix Corporation, a water utility company. Overall the Azurix Corporation proved unsuccessful financially. The Azurix Corporation, due to their failure to make an entrance into the market, went under. By 2001, Enron announced plans to dissemble Azurix and liquidize the assets of the corporation.
Enron allegedly became successful, trading over eight hundred different products worldwide. Enron was named "America's Most Innovative Company" by Fortune magazine from 1996 to 2001. Enron was on Fortune's "100 Best Companies to work for In America" in 2000. The company's future appeared to be bright and promising continued success.
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Enron faced many accusations of building links to political power. The company's connection to George W. Bush, and Houston's local politics has received much attention in the recent past. In 1986, Enron was involved with Bush's company in joint drilling for oil. There are reports that Kenneth Lay and George W. Bush even shared friendship. The Enron Corporation was the largest financial supporter of Bush's presidential campaign. Kenneth Lay has employed politicians who have worked under George W. Bush. Bush also signed off on a law that deregulated Texas's electrical markets, which coincidentally resulted in large profits for Enron.
The company also had political links that reached outside of the United States. Enron created a massive and highly expensive power plant in India, even though many Indian citizens and the World Bank strenuously objected. Allegedly protesters in India were beaten and arrested. The United States ambassador to India, who opposed the plant eventually, joined the board of Enron Oil and Gas.
The screws came loose in August 2001, when Jeffrey Skilling, the CEO resigned from office for unknown reasons. By October 2001, Enron experienced its first quarter where they did not report a profit. On November 8th, 2001 Enron told the SEC it was restating its earnings since 1997, reducing income by 6 million dollars.
In December 2001, Enron filed for chapter 11 bankruptcy. This was the biggest bankruptcy protection case in United States history. It appears that Enron's problems were not in its energy operations, but from "dot com" investments and in some foreign subsidiaries. The accounting system practices in placed failed to provide a clear picture of the corporation's financial status. Enron used accounting techniques involving hiding debts to give the illusion of high profits. When the accounting practices were revealed virtually all profit since 2000 had disappeared and the company plummeted.
Like many other companies Enron offered a retirement plan to its employees, in which they could substitute earnings for stocks in Enron. The benefits to this were that the employees were able to buy the stock on a tax-deferred portion of their pay. When the company closed in December 2001, sixty-two percent of the company's 401 k plan was held in Enron stock. The stock, which once traded at eighty dollars a share, went for less then seventy cents a share when Enron folded.
A History of Enron