Enron Collapse Case Study
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In 1984, Kenneth L. Lay became the Chief Executive Officer of
Houston Natural Gas Corporation, a pipeline operator. Soon after he
took position, his firm merged with Internorth, another pipeline company. Lay became the CEO of the merged firm, and the name of the
firm was changed to Enron. As deregulation of energy became more
widespread (Lay influenced the rate of change) the mission of Enron
widened to include the trading of energy contracts.
Shortly after the merger with Internorth, Lay hired the consulting firm, McKinsey & Co., to help develop a business strategy for
Enron. One of the consultants assigned to the Enron study was Jeffrey Skilling. Lay subsequently hired Skilling to develop new business activities for Enron. Skilling successfully launched Enrons highly
profitable business of trading energy derivatives.
Andrew Fastow was hired by Enron in 1990 from Continental Illinois Bank in Chicago and was appointed Chief Financial
Officer (CFO) of Enron in 1998. Fastow was thought to complement Skillings interests and abilities. Appointing Fastow as CFO was
Enrons second biggest mistake (it probably would not have been
made if the first mistake of allowing the departure of Rich Kinder had
not been made).
1ACCOUNTING/FINANCE LESSONS OF ENRON – A Case Study
© World Scientific Publishing Co. Pte. Ltd.
March 25, 2008 b591 ch01 FA
2 Accounting/Finance Lessons of Enron: A Case Study
Rich Kinder
In November 1996, Enron announced that Rich Kinder was leaving Enron. Shortly before that announcement the Enron Board of
Directors (and Ken Lay) had failed to appoint Kinder as the CEO.
The decision not to appoint Kinder as the President of Enron had very
little to do with Kinders acknowledged managerial abilities.
Kinder was (and is) a world-class manager, one of the few effective
hands-on managers at Enron. The departure of Kinder was the most
significant negative event for Enron during the 1990s. It would likely