In less than 20 years, a small gas pipeline company grew into the world's largest energy-trader, but its ascent to power was in part based on a systematic manipulation of fiduciary rules to create an illusion of well being. Enron made deliberate attempts to alter its financial statements to make those statements look more attractive to investors and lenders. Due to these manipulations many parties have been affected and will continue to be affected in the future, more specifically, many years.
One of the main issues with the Enron collapse was the activities of their C.E.O., Jeffrey Skilling. Not only was he in charge of controlling one of the largest energy companies in the world, he was also in charge of many other side undertakings that may have been in a conflict of interest with his main job as Chief Executive Officer of Enron. The baffling part of this situation was that the other members of the Board of Directors for Enron all voted on this and passed it. Top firms need to be more meticulous in the members they choose and make sure that they will stand up to the C.E.O. if they feel there is a conflict of interest in place.
There are three specific ways in which Enron misrepresented figures on its financial statements to make them look better. First, there was the employee pension plan. Enron used a "floor-offset" arrangement to reduce its pension expense. These arrangements usually benefit workers as well, because they give them the higher of the two values of an employee stock ownership plan (ESOP) or the pension. However, Enron calculated their offsets in a questionable manner and as a result, cut the pension values. This allowed them to state their pension fund as being over-funded by $112 million. The Wall Street Journal states that if Enron was indeed acting improperly in this manner, "the pension could actually be under-funded by $4 million.".
While the first example could be characterized as fairly minor, the second was egregious and ultimately caused Enron to file for bankruptcy protection.
