Lay hired new C.E.O. Jeffrey Skilling, a visionary joined Enron on the condition that they utilize mark-to-market accounting, which allowed the company to book potential profits on certain projects immediately after the deals were signed, whether or not those projects turned out to be successful. Therefore, Enron could subjectively give the appearance of being a profitable company even if it wasn't. Inspired by one of his favorite books in Harvard Business School, The Selfish Gene by Richard Dawkins -- which he misinterpreted as suggesting that humanity survives by genetically passing on greedy and competitive traits -- Skilling established a committee at Enron that graded employees and annually fired the bottom fifteen percent, who were deemed unsuitable for the company's objectives. This created a highly competitive and brutal working environment at Enron. Skilling also changed his nerdy appearance, physically transforming himself into a bold, youthful face of Enron; he also took part in extreme sports.
At Enron, Skilling hired an inner circle of lieutenants that enforced his worldview inside the company, known as the "guys with spikes." They included J. Clifford Baxter, an intelligent but manic-depressive executive who was closer to Skilling than anybody else at the company; and Lou Pai, the C.E.O. of Enron Energy Services, who became a legendary figure within Enron for his ruthlessness. Pai was also notorious for using money from Enron shareholders to feed his obsessive habit of visiting strip clubs, and for allegedly inviting strippers into his office and onto the Enron trading floor. Pai abruptly resigned from EES with $250 million, soon after selling his stock and divorcing his wife to marry his girlfriend, a stripper. Despite the amount of money Pai had made, the divisions of Enron he formerly ran lost a total of $1 billion, a fact covered up by the company. Pai later used his money to buy a large ranch in Colorado, becoming the second-largest landowner in the state.
With the impressive bull market brought on by the dot-com bubble of the late 1990s, Enron saw its stock skyrocket. As it became increasingly successful, Enron sought to beguile stock market analysts by meeting their projections. Enron executives also pushed up their stock prices and then cashed in their multi-million dollar options in a process called "pump and dump." Enron also mounted a public relations campaign to portray itself as a highly profitable and stable company, even though Lay and Skilling were concealing the fact that many of Enron's worldwide operations were performing poorly. One of the company's biggest failures was the construction of the Dabhol Power Plant in India, which Enron built to defy the rival energy companies' fear of investing in that country. However, Enron was forced to abandon the plant when it turned out that India couldn't afford the power it was producing, losing $1 billion. Enron also attempted to use broadband technology to deliver movies on demand, and also "trade weather" like a commodity; these ambitious initiatives, however, also failed.
By this time, stock market analysts were so mesmerized with Enron's profits that they began to uncritically believe everything the company told them. If an analyst proved to be skeptical about the company's profits and didn't give positive buy-recommendations, Andrew Fastow, Enron's chief financial officer, would pressure their employers to fire them. This was done to Jon Olson, an analyst for Merrill Lynch.
Feb 11, 2010, 18:41:50
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