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“Enron: The Smartest Guys in the Room” by Alex Gibney


Crime has been part of society for a long time. History reveals various forms of crimes from time to time and in different societies. The reason why people commit a crime has been a difficult puzzle. Various theories try to explain various forms of crime, why they occur and how to prevent crime. White-collar crime has been the most common form of crime in our society today. Various major scandals in the recent past have led to severe effects on the economy and the fall of important companies and institutions. The Enron scandal is one of the recent major scandals that had a widespread effect on the economy.

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The movie, Enron: The Smart Guys in the Room, give us surprising detail of how the scandal took place. The movie gives the motivation and conspiracy of Kennedy Lay, Lou Pai, Jeffery Skilling and Andrew Fastow, the main character, together with other individuals involved in the scandal. Theories of motivation to crime can help us to explain the scandal and the people involved.

Theories of Criminology

Kennedy Lay

Kennedy Lay was the founder and the top official in the company. The criminal involvement of Kennedy can be explained by differential association theory. This theory explains that crime is learned rather than innately acquired (Lilly & Cullen, 2007, p. 57). From the movie, it is evident that Enron has an ill motive right from its inception in 1985. Kennedy Lay had greed for wealth and intended to use any means to acquire the wealth with disregard to ethics and morals. Kennedy associates encouraged him to use smart ways to acquire wealth from ignorant people. This common perception with his associate encouraged him to initiate unethical ways of getting money or fail to prevent the scandal, although he had the power to do so. Kennedy uses his associates to conspire for unethical business deal. Before joining Enron, Kennedy Lay had worked in energy industry for a long time. Having worked in the Industry for long, Lay had many associates, some in senior position. After Enron was formed, Lay wanted to use his connections to exploit opportunities in the energy sector to gain wealth.

Kennedy Lay criminal activities in the Enron scandal can be explained through opportunity theory (Lilly & Cullen, 2007, p. 57). Enron, under the leadership of Lay made use of opportunities in the energy Industry to gain money in a fraudulent way. Poor control in the energy sector allowed the company to engage in gambling trade. In one point when Kennedy Lay is informed of how his company’s officials were putting company’s money into their account, Lay play it down by claiming that this did not matter as long as the officials brought riches to the company. Poor control of accounting helped Enron officials to hide the truth of the financial state the company. With Lay’s knowledge, the company manipulated its books of accounts to raise the prices of their shares.

Kennedy Lay criminal activity has a social aspect. Enron was involved in unethical practice right from its inception in 1985 but the unethical practices were revealed only at its fall. Kennedy learnt to use unethical ways without consequence. In 1987, Lay allows Enron officials to continue in unethical gamble as long as they are profitable to the company. As unethical practice after unethical practice goes unnoticed, the criminal practices were reinforced in him. The habit of unethical practices were reinforced in Lay that he could encourage Enron employee to invest their life long savings to the company, even with knowledge that the company was in the verge of falling.

Jeffrey Skilling

Jeffrey Skilling was the chief executive officer on Enron at its falls. As the chief executive officer, Jeffrey Skilling was responsible for major decisions in the company. Micro-economic theory of crime can be used to explain his criminal involvement in the Environ scandal. Micro-economic theory of crime considers economic factors as a variable in crime (Cote, 2002, p. 87). According to the theory, period of economic contraction motivate people to be involved in crime as a way to overcome economic constrains. Enron initially had good profitability, growth and its shares were competitive in the stock market. Skilling was anxious when the performance of the company starts to drop and the share prices of the company start to loose value in the stock market. This economic environment motivates Skilling to look for ways to keep the company performing. Skilling is seen in the documentary as he encourages other company’s officials and workers to be creative and think outside the box for business deals. The smart, out of box, deals led to compromise of ethical practice that eventually led to the scandal. Skilling was concerned of Enron’s share value in the stock market. The high dept and low profitability of the company would have led to drop of the company’s share prices in the stock market. With aim to maintain constant growth, Skilling allows high-risk deals that led to great losses. In addition, he allowed the accountants to hide the losses by manipulating the books of account.

Structural humiliation theory is very relevant in explaining Skilling’s criminal activities (Deflem, M, 2006, p.138). Enron had been able to rise to be the seventh largest company in United States. The perceived success of the company had received recognition in various forums. When the company starts to drop, Skilling is concerned of his name as the company’s chief executive officer. He tries to hind the humiliation through the books of account, hoping that the company could later overcome. The desire to appear as a smart chief executive officer led Skilling into crime and eventually led to the fall of the company.

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Skilling’s criminal involvement also has organization theory elements. Enron scandal had structural element, none of the person involved could success alone. Enron scandal occurred in full knowledge of Skilling. In reference to the scandal, Skilling appears as the person who oversaw all activities of the scandal. Skilling had the ability to stop the unethical practices but he chose to let the scandal continue.

Lou Pai

Lou Pai was the Enron’s chief executive officer for energy reserves. In the documentary, Pai is visible for his ruthlessness. Lou Pai was very close to Skilling and relied on each other for advice. Pai position as the chief executive officer in charge of energy reserve, and his closeness to Skilling provided the opportunity for him to commit the criminal activities. Using his position, Pai used the company’s resources for his personal activity. For example, Pai would use a private jet for personal mission at the expense of the company. He also used money from the company to maintain his obsession for strip club visits. As he leaves the company, Pai make use of his position and unethical culture in the company to defraud the company Two Fifty million dollars.

Psychological theory is relevant with Pai criminal activity. Pai had a hush and uncompassionate personality. In addition, Pai involved himself in strip club visit and even took striper to his office. This psychological nature could have motivated him to crime. Risk analysis theory is also relevant to him. Pai had close relation with Skilling, the chief executive officer, and was aware of unethical practice by senior officials in the company. Using risk analysis theory, Pai was aware that the probability for being punished for his activities was low.

Andrew Fastow

Andrew Fastow was the chief finance officer of Enron at the time of the scandal. Fastow was responsible for the manipulation of books of account and conspiring with external auditors to hide the truth. Using strain theory, Fastow fraudulent stole from the company in order to meet his expensive life. Social and psychological element also played a big role in Fastow criminal activities. Fastow believed that he was smart and could help the company to overcome the economic situation. The relationship between Fastow, Skilling, Pai and Lay had influence to his decisions.

Rationalization theory explains Fastow criminal activities. In the documentary, Fastow justify why the company had to use the unethical practice. Fastow was involved in several activities that were against ethical practice in accounting. He led the accounting department to conceal the extent of Enron’s trade and finance state. Fastow justify his activity by arguing that the high market valuation was necessary to save Enron from falling.

Micro-Micro Connection

Enron scandal was a complex scandal that left everybody wondering how such a scandal could have happened without notice. The Smartest Guys in the Room provides detailed explanation of the scandal. Micro- micro connection is evident in the scandal (Gaylord & Galliher, 1988, p. 47). The individuals involved in the scandal, individual motivation to crime, and the overall environment in Enron have correlation in the scandal.

Kennedy lay, as the Chairman, contributed to Enron unethical culture. Lay had greed for riches that he compromised ethics practices. The inability of Lay to stick to ethic created a platform for unethical culture that later led to Enron scandal. When Skilling is appointed as the chief executive, he is given his role as creating wealth for the company. The greed culture in the organization led to unethical culture. The company would allow deals that led to financial benefit by conclusion of a deal. Individuals’ greed for wealth was fulfilled in the overall Enron greed. Individuals were rewarded for profitable deals and gambles, without considering how the deals were made.

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Conspiracy between the senior officials in Enron played a big role to the scandal. While most subordinate employees were not aware of the scandal, the senior officials conspired to defraud the company a lot of money. The inner circle created around Skilling was a sure protection. To be successful in unethical deals, Enron officials also conspired with other official in the energy company. For example, Californian blackout conspiracy brought about unjustified financial to the company. Unethical culture, disregard for corporate responsibility and individuals’ greed were the main reason behind Enron scandal. Poor government control on energy industry and poor oversight on auditing firm allowed the scandal to continue for long.

Reference List

Cote. S. (2002). Criminological theories: bridging the past to the future. New York: Sage.

Deflem, M. (2006). Sociological theory and criminological research: views from Europe and the United States. London: Emerald Group Publishing.

Gaylord, M. & Galliher, J. (1988). The Criminology of Edwin Sutherland. New York. Transaction Publishers.

Lilly, R. & Cullen, F. (2007). Criminology theories: context and consequences. New York: Sage Publication.

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