Curt Launer, managing director at Credit Suisse First Boston, presented a presentation about the Enron scandal. According to him, there were three main reasons for this scandal: innovation, compensation and investment attraction.
In the early nineties, Enron innovated a lot which led to buying large amounts of capital. The company grew and saw their shares rising.
To benefit their executives, Enron had a compensation system which included a stock option plan. This was an incentive to keep the stock price getting higher and higher. When the debts rose, Enron used creative accounting to maintain their price and to stay attractive for the investors. Of course this went wrong after a while, I have explained this in other blogs.
The Enron scandal is a good lesson for other companies. Companies should have high ethical standards so that these things can’t happen again and they should stay to their core business instead of entering other markets.