Английский язык. Практический курс для решения бизнес-задач

Enron’s «intellectual capital» was Skilling’s pride and joy. He recruited more than 250 new MBAs each year from the top business schools. Meteorologists and PhDs in math and economics helped analyze and model the vast amounts of data that Enron used in its trading operations. A forced ranking system weeded out the poor performers. «It was as competitive internally as it was externally,» says one former executive.

It was no surprise then that Skilling would turn to a young finance wizard, Fastow, to help him raise capital for his rapidly expanding empire. Fastow was recruited to Enron in 1990 from Continental Bank. Articulate, handsome, and mature beyond his years, he became Enron’s CFO at age 36. In 1999, he earned CFO Magazine’s CFO Excellence Award. Skilling told the magazine: «We didn’t want someone stuck in the past, since the industry of yesterday is no longer. Andy has the intelligence and the youthful exuberance to think in new ways.»

But Skilling’s fondness for Fastow was not widely shared. Many colleagues considered him a difficult man, prone to attacking those he didn’t like in Enron’s group performance reviews. When he formed and took a personal stake in the LJM partnerships that blew up in October, the conflict of interest inherent in those deals only added to his colleagues’ distaste for him. Enron admits Fastow earned more than $30 million from the partnerships. The Enron CFO wasn’t any more popular on Wall Street, where investment bankers bristled at the finance group’s «we’re smarter than you guys» attitude. Indeed, that came back to haunt Enron when it needed capital commitments to stem the liquidity crisis. «It’s the sort of organization about which people said, `Screw them. We don’t really owe them anything,»’ says one investment banker.

While LJM shocked many, the deal was just the latest version of a financing strategy that Skilling and Fastow had used many times since the mid-’90s to fund investments with private equity while keeping assets and debt off the balance sheet. «They were put together with good intentions to offset some risk,» says S&P analyst Ron Barone. «It’s conceivable that it got away from them.»

Did it ever. The off-balance-sheet structures grew increasingly complex and risky. Some, with names like Osprey, Whitewing, and Marlin, were revealed in Enron’s financial filings and even rated by the big credit-rating agencies. But almost no one seemed to have a clear picture of Enron’s total debt, what might hasten repayment, or how some of the deals could dilute shareholder equity. «No one ever sat down and added up how many liabilities would come due if this company got downgraded,» says one lender. Many investors were unaware of provisions in some deals that could dump the debts back on Enron. At the same time, the value of the assets in many of these partnerships was dropping, making it even harder for Enron to cover the debt.

In theory, Enron had mechanisms in place to assess risk and accurately report financial numbers. Enron’s external auditor was the once-venerable Arthur Andersen, dubbed the «Marine Corps of accounting» for the hard-nosed attention to accounting standards it once exemplified. Enron required that deals be rigorously analysed, a process that often included review by the legal department of the originating unit, the corporate legal department, the chief risk officer and chief accounting officer.

However, the system of checks and balances in Enron was easily overridden. Deal originators could determine the total value of their proposals by manipulating the long-term price for whatever was being bought or sold. Their bonuses were based on the total value of the deal, not the cash it brought in. All this was designed to boost the quarterly reports, made possible by «mark-to-market» accounting, a system Skilling pushed Enron to adopt in 1991 that allows a company to report as current revenue the total value of a deal over its projected lifetime. Mark-to-market in Enron made earnings look good, pumping up the stock price and increasing the value of stock options executives received as compensation. «It was a moral hazard being able to record your profits immediately,» one former executive said. «It created many temptations.»

High hopes. Skilling was determined not to scale back his grandiose broadband trading dreams or the resulting price-to-earnings multiple of almost 60 that they helped create for Enron’s stock. At its peak in August, 2000, about a third of the stock’s $90 price was attributable to expectations for growth of broadband trading.