|Type of paper:||Book review|
|Categories:||Analysis Literature review Business ethics Business management Books|
The Book, The Smartest Guys in the Room is written by two senior authors McLean and Elkind providing exclusive reporting with all the drama and full narrative. The book offers a recap of the story which later on became to be referred to as The Rise and fall of the Enron (Gillespie, 2004). Enron is a description concerning America's most prominent company failure and the discussion concerning the human tragedy that took place during that point in history. Today, The Smartest Guys in the Room is a vital business story of our time since it epitomized a significant new economy firm with its large returns and share price.
The primary aim of any business is to generate income and plug that profit back into the market to a point where the firm becomes the most successful in the continent. However, this book provides a discussion on one of the largest company in the world and how it kept on increasing its profits annually through deceptive and fraud practices hence the name, Smartest Guys in the World. Therefore, McLean and Elkind examine one of the most deceptive enterprises which degraded from being one of the most prominent power supply firms in the universe to being termed as the company with the most massive financial scam ever witnessed.
The book provides an evaluation of the rise and collapse of Enron. Enron is described as a spectacular deceitful energy trading firm whose downfall in 2002 caused a considerable loss to the investors with over hundreds of millions getting lost. Enron progressed from being a pipeline company to become an economic giant by deceiving the middle man, distributing long term gas contracts to consumers for a fixed amount of money as well as disbursing money direct to gas suppliers. As a result, the company managed to lower the risk linked with rapid variations in natural gas prices. Consumers got attracted by the stability established by the business while the sellers needed ready funds to develop new claims. Enron would trade the long term contracts as a side business as if it was like any other product. In the beginning, this seemed to be an ideal technique that transformed the energy industry in the US. Enron became successful due to the purchase of long term contract which dominated the company to an extent it failed to offer the intended services. Workers and managerial staffs were encouraged to trade contracts so that they can be sold away. Notably, the contract purchased were recorded in the books as income hence causing the company stock to increase rapidly. The increase of the company's stock meant that the executives received huge paydays since they were paid in stock yet no one was ensuring that the agreement was actually accomplished.
For instance, Enron would enter into a contract to develop a power plant in India, estimate the income that would be generated from the power plant, declare that as income, and trade the deal on the market, once the stock increases the executives received a considerable amount of money. However, the actual power plant was never constructed, and no one bothered to do a follow up on the construction of the project. On the other hand, India would not pay for a project which was never constructed; thus, the anticipated cash flow was never actually generated.
As a consequence, Enron was forced to hide the losses incurred from the boondoggle in the stock market. The debts were then later on sold to shell company by Enron CFO and declare another profit although, in the end, the Ponzi scheme caught up with them and it came crashing down (Gillespie, 2004). Therefore, this work aims to analyze the effectiveness of the operations which were established off the radar without taking note of the imminent threats which eventually caused a downfall of the company. The principles of the AICIPA holds that executives are supposed to provide transparent information so that they can be trustworthy to the investors (AICPA Code of Professional Conduct, 2015). However, the honesty of the executives in Enron Company is being called into question since organizational culture was more focused on bonuses and rewards leaving the company to be exposed to multiple threats which caused it to fall.
Smartest Guys in the Room is a story that exploits the subject of greed, deceit, and arrogance which is committed in most of the American businesses today. The book is meticulously researched and backed up by character-driven hence extending the reader's understanding about Enron's past as well as behind the scenes of private meetings. Additionally, the book applies a broad range of unique sources hence successfully presenting the process of Enron's rise from nothing to become the leaders in the business sector until its disastrous end. It brings to light most of the significant characters that took part in the downfall of the business such as Jeff Skilling, Andy Fastow, and Ken Lay.
Enron Corporation was an energy-enterprise and utility business. Kenneth Lay was holding the position of company's chairman while the chief executive officer was Jeffrey Skilling. The two executive members of the company, arrogantly assumed that they were the smartest guy in the room. Guided by this notion, they unanimously developed the innovative business commodities concepts which helped them to venture into other side businesses such as gas stocks and internet bandwidth among others. Due to mismanagement of funds and poor decision making in terms of revenue generation, the company experienced difficulties which caused the loss of vast sums of money although the information was kept away from the investors.
Smartest Guys in the Room can be described as a fascinating human drama that seek to depict the authoritative account of the Enron scandal. In that, the book illustrates a definitive case history of the downfall of one of the biggest companies not just in America but across the world. The authors demonstrate the failures of Enron which were primarily attributed by greed as well as moral indifference which is currently very common in the corporate sector. The business managers in the company failed to adhere to the codes of professional conduct as required by AICPA. As a consequence, the business enterprise lacked the professional competence, integrity, confidentiality, and objectivity which are some of the roles necessary for the accounting professionals through the code of ethics set up by AICPA (AICPA Code of Professional Conduct, 2015). In that, the top management team had similar personality characteristics, educational background, and life experiences along with uniformity in the methods of management accompanied by major managerial techniques that created a highly imbalanced leadership group. As a result of the profound similarities in the executive team together with their hands-off operational approach caused a weakness in internal management among other elements that triggered ethical lapses.
This is a compelling reading since it paints a fascinating and captivating picture of what Enron did as a company along with the complex accounting errors, complex products trading and corporate scam. Although the reader must acknowledge that Elkind and McLean did an incredible job with pacing, juggling of many casts, and striking a balance between readability and detail. A surprisingly point to note is the introduction section that covered five pages although the events, people, and aspects of Enron business were well articulated and refreshed effectively without necessarily twisting the story. Towards the end of the novel, the reader can have a clear picture of how the business started falling apart making it an excellent book to read. Nonetheless, one does not need to be financially knowledgeable to comprehend what the story is all about since it uses a simple language about the market and finance. The authors do not focus so much on defining economics for the beginner although McLean and Elkind describe the non-basic concepts whenever they are applied in writing.
Enron's company traditions had an immense effect on worker's moral decision making because of the significant discrepancy in power among the employer-employee association. In circumstances where there are massive pressures to attain sales or profit objectives, there is a likelihood of the emergence of unethical behaviour and a tendency to manipulate events that would result in personal gains. Revenue goals were viewed as some games that were operated to increase quarterly profits. In as much as setting goals and missions for workers is a conventional technique of enhancing productivity and output, in the situation of Enron, the integration of these goals and workers' culture had strong and predictable negative side effects to the company.
Such adverse side effects involve risk-taking, an increase of propensity for competition, development of unethical behaviour and ignoring the employee's intrinsic ethical values or their distinct personality features. This implies that, in such an environment where there are minimal checks and balances, the quality of the workers was not considered since all efforts were directed towards the corporate values. Enron's corporate trends were characterized with aggressiveness, risk-taking traditions both inside the corporate and outside. Some of the risk-taking behaviours recorded in the book are placing wild bets on the market and negative attitudes among the employees.
To sum up, Enron's early achievements and later downfalls provide a wide range of valuable mechanism for executive teams. The book offers useful insights on how top managers can advance their leadership capacities which will ultimately develop the corporate that they serve. McLean and Elkind have clearly articulated the remarkable leadership roles that managers play in improving the culture of the company. Additionally, the book enhances the knowledge of the executive team on how corporate culture develops or can be transformed. The novel points out the risks and threats present in the accounting department and the possible adverse consequences it can have to the company. Therefore, top managers should consider the AICPA Code of Professional Conduct that is created to promote professional norms and standards hence discouraging the lack of transparency experienced in the book, The Smartest Guys in the Room. Enron's complex financial records were confusing to investors and analysts leading to the development of unethical activities that misrepresent the earnings of the company as well as messing with the balance sheet to portray favorable performance. Thus, accountants should apply the codes of professional ethics as set up by AICPA to avoid such cases in future.
AICPA Code of Professional Conduct. (2015). American Institute of Certified Public Accountants, Inc., i-185. Retrieved from. https://www.aicpa.org/content/dam/aicpa/research/standards/codeofconduct/downloadabledocuments/2014december15contentasof2016august31codeofconduct.pdf
Gillespie, D. T. (2004). The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. Academy of Management Executive, 18(3), 163-165. https://doi.org/10.5465/AME.2004.14776206
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