Lessons from Enron collapse
Jul 06, 2006
THE former chairman of Enron, Kenneth Lay, has died in Colorado while awaiting sentencing in the biggest corporate fraud of all time. Enron is often confused with AES who originally intended to start the Bujagali project.
THE former chairman of Enron, Kenneth Lay, has died in Colorado while awaiting sentencing in the biggest corporate fraud of all time. Enron is often confused with AES who originally intended to start the Bujagali project.
Lay did once visit Uganda but he had no connection with AES Nile Power which was, and still is, a respectable company running power generation projects all over the world.
Enron was an energy trading company without substantial assets. A small Texas gas company in 1985, it mutated into a huge financial house of cards with an annual turnover of $100 billion by the time it collapsed in 2001. Shareholders and the US government lost huge amounts of money and 21,000 employees lost their jobs. The demise of Enron holds lessons for governments everywhere.
Firstly, governments should be sceptical of businessmen that make unbelievable promises. Lay and his colleagues managed to convince people, including the present American president George Bush, that they had discovered a new way of making money by trading in energy derivatives. But it was just hot air. Lay and his associates were just spinning money around in circles and hiding their losses through sophisticated accounting tricks.
Lesson One: Be sceptical of businessmen who claim to have foolproof ways of making huge amounts of money. Profits are generated only through hard work and capital investment.
Secondly, the American government spent a lot of money in bringing Lay and Skilling to justice. The American government did not let them off the hook although it was technically very complex to prove that they had broken the law. Lay would have ended up in jail like his colleagues if he had not died.
Lesson Two: Governments should prosecute rogue businessmen even if it is complicated and difficult to substantiate the charges. Otherwise they risk destabilising the economy when the bubble eventually bursts.
Lay did once visit Uganda but he had no connection with AES Nile Power which was, and still is, a respectable company running power generation projects all over the world.
Enron was an energy trading company without substantial assets. A small Texas gas company in 1985, it mutated into a huge financial house of cards with an annual turnover of $100 billion by the time it collapsed in 2001. Shareholders and the US government lost huge amounts of money and 21,000 employees lost their jobs. The demise of Enron holds lessons for governments everywhere.
Firstly, governments should be sceptical of businessmen that make unbelievable promises. Lay and his colleagues managed to convince people, including the present American president George Bush, that they had discovered a new way of making money by trading in energy derivatives. But it was just hot air. Lay and his associates were just spinning money around in circles and hiding their losses through sophisticated accounting tricks.
Lesson One: Be sceptical of businessmen who claim to have foolproof ways of making huge amounts of money. Profits are generated only through hard work and capital investment.
Secondly, the American government spent a lot of money in bringing Lay and Skilling to justice. The American government did not let them off the hook although it was technically very complex to prove that they had broken the law. Lay would have ended up in jail like his colleagues if he had not died.
Lesson Two: Governments should prosecute rogue businessmen even if it is complicated and difficult to substantiate the charges. Otherwise they risk destabilising the economy when the bubble eventually bursts.