Analysis of Enron - the Smartest Guys in the Room - Essay Example

It is amazing to look at the leading role played by banks, financial media, accounting firms, and the government. The film, explains how they earn loads of money by exploiting commodities trading and accounting methods at the same time how it is losing plenty of money in real-world undertakings. The film portrays beautifully and makes it understandable even for a layman how Enron set up its first commodities trading desk to take advantage of inside knowledge of the gas business, and then tried to implement the same model with water, broadband, electricity, etc. In reality, as a trading firm, Enron avoided investment firm policy by portraying itself as an industrial firm. The film's dramatization of Enron's role and the political manipulations behind the California energy crisis is well portrayed.

In fact, throughout the film, there is a great deal of emphasis given on the fact that this can happen again. It has happened before for instance in the cases of leveraged buyouts, the Savings and Loan crisis, the burst Internet IPO bubble, the 1920s Stock Market crash, etc and it can happen again in the future. It can be said that Enron, the film, is a lesson on how one corporation recently stole from investors, employees, and its "customers" (Independent Lens). Additionally, as an investigation of corruption in the corporate sector, the film gives a sensible look at the culture and the intrinsic problems within the companies. The movie provides a few mechanisms such as the vitality curve and the Milgram experiment. This is especially for attracting an immensely immoral and profit-driven corporate culture.

The vitality curve represents the idea of the invariable contest in the workplace. To be more specific the individuals are ambitious to compete with each other because wherever possible the employees who are not performing will be thrown out of the company at any moment. In the film, it is clearly shown how Enron constantly hired new staff just because of the reason that even with high profits it was firing people for production of less than 1000 times what they were being paid. Therefore the environment was such that it caused people to not only ignore the law but also to take action competitively in breaking the law.

This film clearly shows how the top officials of the company and the government play a role in bringing about an energy crisis in the state of California. In the film, it is shown that the Enron employees makes a plan for the transfer of electricity from the state of California into nodes in other states where there was a surplus and was not required at all. California had signed legislation allowing for a free market in energy and as an answer to this, Enron shaped a demand by causing blackouts across the state. As soon as this happened the price of electricity increased drastically, and Enron made billions and billions of dollars in profits to ship back the energy they took out of California back into California.

Breaking laws and doing illegal acts were encouraged at Enron. With a goal derived from the hunt for profit, Enron employees were always asked to break laws or perform acts that could be considered immoral. It was seen that none of the Enron employees ever came forward to report the corruption. The factor that unavoidably led to people coming forward was a "sinking ship" feeling, resulting in some of the Enron executives selling their shares while telling employees to keep their shares in a wrong perception that the value will go up and they will gain profit (Wikipedia).

Enron's collapse also contributed to the creation of the U.S. Sarbanes-Oxley Act (SOX), signed into law on July 30, 2002. It is considered the most significant change to federal securities laws since FDR's New Deal in the 1930s. Other countries have also adopted new corporate governance legislation. This law provides stronger penalties for fraud and, among other things, requires public companies to avoid making loans to management, to report more information to the public, to maintain stronger independence from their auditors, and most controversially, to report on and have audited, their financial internal control procedures. However, certain provisions in the legislation are currently under review in Congress (Wikipedia). Read More