Twenty years after epic bankruptcy, Enron leaves a complex legacy

Enron’s bankruptcy on December 2, 2001 led to an epic scandal, nearly two dozen criminal convictions, and far-reaching government reforms. Enron has become an enduring symbol of corporate fraud.

But 20 years later, several experts, former company insiders and others say Enron’s legacy deserves another look. They say the company, repeatedly hailed as America’s “Most Innovative” company, was truly a pioneer in businesses we take for granted today, from energy trading to streaming video.

Among those defending Enron’s legacy are the daughter and son of company founder and former chairman, Kenneth Lay. A federal jury convicted Lay of 10 criminal offenses in 2006, but because he died of a heart attack six weeks later – before he could appeal – his convictions were overturned.

“Before 2000, Enron was one of the largest developers and operators of renewable energy in the world (primarily solar and wind), the first major US energy company to advocate capping and trading carbon credits, had targeted recruitment programs at historically black universities that have actively promoted women and minorities in leadership positions and on the board of directors, and have provided more than $ 28 million in equity investments in underserved communities and entrepreneurs, “said Elizabeth Lay, an attorney who worked on her father’s defense team, and Mark Lay , a former vice president of Enron, in a statement made available exclusively to CNBC.

“The model was simple: hire the brightest people you could find, give them capital, and manage the back office for them so they can build new markets,” said the Lays.

Stephen Webster, a former executive in Enron’s international division, described a high-pressure sink-or-swim culture.

“I would tell you it was probably one of the best jobs I’ve ever had,” he said. But looking back, Webster said he didn’t regret the stress. “We have entered new markets. We have done new things.”

Ravi Kathuria, a former strategy director at Enron’s energy retail business, Enron Energy Services, described a culture where employees were given a remarkable level of autonomy – one where bosses never called to ask what the workers were doing or how they were doing went. Employees were expected to make the most of freedom.

“Enron fostered innovation and fostered an environment where everyone within the company acted like an entrepreneur, your own in-house entrepreneur, and you were responsible for your destiny,” he said.

Even some of Enron’s harshest critics admit that the company was a pioneer.

“Has Enron revolutionized the way we trade in natural gas and electricity? Without question,” said Ed Hirs, University of Houston energy scholar who served as an advisor to the Enron Justice Department’s task force. Hirs helped prosecutors frame their cases against Enron executives. “They were pioneers and brought efficiency and transparency to the markets of these economies. It was really fantastic.”

In the 1990s, Enron transformed from a cumbersome natural gas pipeline company to a corporate dynamo thanks to an innovation called Gas Bank, developed by McKinsey consultant Jeffrey Skilling. He would later become CEO of Enron and would later serve the longest prison sentence of any Enron executive – 12 years. But the charges against Skilling – including fraud, conspiracy, and insider trading – had virtually nothing to do with Enron’s trading model, which is still used across the industry to this day. Skilling declined to comment.

Enron took advantage of the deregulation of the natural gas industry and established itself as an intermediary between gas pipeline operators and customers such as utilities, taking its own cut. It also adapted the concept to electricity.

In 2000, Enron’s last full year as a publicly traded company, the division that comprised its trading operations accounted for more than 90% of the company’s sales of $ 100 billion. The company’s internet trading platform, known as EnronOnline, processed more than $ 336 billion in transactions that year, making it the world’s largest e-commerce marketplace at the time.

While Enron’s trading business had little to do with the company’s accounting scandal, the unit’s successes attracted tricky bookkeeping in the trading unit and elsewhere in the company, Hirs said.

“Because they have brought transparency and liquidity to the market, the margins – the gaps between the bid and ask prices – have narrowed,” said Hirs. “And so it is very, very difficult for them to report ever increasing revenues and increasing profits.”

But the business model itself is sustainable in the long run, said Hirs.

“If they hadn’t covered up the fact that they really weren’t making any money, they’d still be here,” he said.

And in a way, they are. Enron alumni are scattered across the industry at companies that buy and sell natural gas on the same principles as Skilling’s gas bank.

Enron would seek to replicate its success with natural gas in other markets, with mixed results. It became a leader in power trading despite three Enron traders pleading guilty to manipulating the California market during a power crisis in 2000. Even so, the business itself was solid. And some, including the Federal Energy Regulatory Commission, argued that much of the blame lay on California for developing a system that could even be played.

“Significant delivery bottlenecks and a fatally flawed market design were the main causes for the collapse of the Californian market,” wrote FERC employees in a 2003 autopsy.

Enron’s attempt to work its magic in the nascent broadband market in the ’90s was perhaps the most problematic, although to this day it has influenced the way we communicate and consume content.

The idea was to buy and sell internet bandwidth the same way the company traded natural gas. And to meet demand, Enron Broadband would offer blockbuster services in a joint venture with video rental chain, including video conferencing over the Internet – an early version of cloud computing – and even streaming movies on demand. These innovations took place decades before Zoom and Netflix became household names.

“We said there was going to be a new medium,” said F. Scott Yeager, a former director at Enron Broadband who worked on the new technology. “The new medium would be the combination of streams, interactivity and dynamic content based on databases that offer a unique user experience.”

But with the collapse of the dot-com bubble, Blockbuster’s inability to license significant content from Hollywood studios, and a huge glut of bandwidth, the broadband division never lived up to Enron’s lofty goals. Allegations that the company tried to hide this from investors have been at the center of the prosecution – and the guilty guilty guilt – of several executives at Enron Broadband, as well as in the case of Skilling, the former CEO.

Yeager was accused of inflating the value of Enron stock by playing up technology that prosecutors claimed didn’t work. But a jury acquitted him of conspiracy, securities fraud, and wire transfer fraud while bogged down in about 20 insider trading cases and 99 money laundering cases. When the government tried to prosecute him again in these cases, Yeager took his case to the Supreme Court and won.

“Our network was real, yes, everything we did was real. And the infrastructure was real,” said Yeager.

But 20 years later, prosecutors working on the investigation still say broadband is typical of a pattern at Enron of being a little ahead of its time and not equating with investors when gambling fails.

“Broadband may have been a brilliant, brilliant idea, but it wasn’t prime time ready. And in the meantime, they’ve tried to take advantage of it anyway, ”said Leslie Caldwell, first director of the Enron Task of the Justice Department’s power. Caldwell was supposed to head the department’s crime department during the Obama administration. Today she is a partner at Latham & Watkins in San Francisco.

“I’m not saying they didn’t have good ideas or anything, but they tried to monetize things before they were really done,” she said.