Change management- Change triggers -Enron

A global corporate fraud - Enron -India

Kenneth Lay and Jeffrey Skilling were in the cockpit and at the helm when Enron collapsed, robbing the jobs of over 20000 people and swallowing life savings of thousands along with it. They were fully aware of every manipulation they did and the consequence of those fraudulent actions. Kenneth Lay helped to create Enron in 1985 as a natural gas provider and presided as it grew into an energy-trading global behemoth. 

Enron was another typical capitalist businessman Kenneth Lay’s creation, by merging two natural gas pipeline companies i.e. Inter North & Houston Natural Gas. Enron's main business was in natural gas, electricity,commodities and services. Due to its substantial growth in the demand the company not only became one of the world’s major energy companies and earned the honor by Fortune magazine as “America’s Most Innovative Company” for six consecutive years. 

The most innovative company became bankrupt by filing the largest bankruptcy case in the American history. The shares that were quoting at 90 US$ came down crashing to 1$. The Scandal surfaced in October 2001, and it led to the demise of one of the reputed five   audit and accounting firms at that time i.e. Arthur Andersen. 

The fraud involved not only  concealing financial information through fraudulent accounting strategies and also  ambiguous financial reporting with the connivance of audit firm. Using strange accounting heads the company to could hide debts.  The top management managed not only to tell lies about inflated profits but also, managed to conceal  billions worth  debts which were accumulated as result of failed projects and deals. Bankruptcy was to the tune of $63.4 billion. Auditors  Arthur Andersen had to pay the price as they turned blind to the unethical issues. The scam resulted in the loss of jobs for 85,000 employees of Anderson. This was an example of a crisis hitting unprepared management of an organization which preached the world about corporate governance and best practices .

In 1992, Enron’s entry into India was when IMF exerted pressure on the Indian government to start deregulation and privatization, especially in the country's power sector. The power generation and supply were  totally in the government’s hands.

The sector was starving for investment and was the easy target for Enron, along with General Electric, Bechtel and two other huge multinational corporations. They exploited this opportunity to sign an agreement with one of the India's power-starved State of  Maharashtra to build the Dabhol Power Project.

Right from beginning the contract was meant to benefit only Enron in a  huge way for a long time to come as the Indian officials had no clue in structuring such contracts. Enron initially had 80% shareholding in the newly created Dhabol power corporation, while GE and Bechtel owned 10% each. From the very beginning, Enron made sure to have total control on a project.

The Dabhol power plant in India was built with the combined effort of Enron, GE, and Bechtel... It had the backing of a local political party in power. GE provided the generating turbines to Dabhol, Bechtel constructed the physical plant, and Enron was responsible for managing the project through Enron International. The confused unintelligent and corrupt government officials provided an opportunity for penetrating deep into India’s energy projects without much difficulty.

Dhabol was designed to fail from the beginning, and the body blow it received due to Enron’s misdeeds made it sick and it never would generate  any power even in 2015. The Government had to do a face-saving measure and the sick company was taken over and revived by the RGPPL (Ratnagiri Gas and Power Private Limited), another Government company. Even after 25 years the project remained unviable and could not generate a single unit of power after flushing billions of Indian taxpayer’s money down the drain.

This is a classic example of greed supported by unethical business practices of one capitalist who attempted to destroy even the governments with the connivance of greedy politicians and system. Without any checks and balances to contain risks, the damage went untackled. Early warning signals were totally absent in handling operations and total absence of crisis management brought in catastrophe with multiple aftershocks for Dhabol Power projects.