E nro n Pre se nta tio n Outline E a rly L ife o f Arthur Ande - PDF document

1/10/2019 E nro n Pre se nta tio n Outline  E a rly L ife o f Arthur Ande rse n  E nro n—T he Gre a te st Co mpa ny in the Wo rld  T he F a ll o f Arthur Ande rse n  Addre ss Ca se Que stio ns  Additio na l Ac a de mic So urc e s—L uc c i, Co pe la nd 1

1/10/2019 E a rly life o f Arthur Ande rso n  F o unde r is so n o f No rwe g ia n immig ra nts  Jo hn a nd Ma ry Ande rso n  Pla no , I llino is  Also kno wn a s No rwa y, I llino is  Arthur wa s b o rn in 1885  F a sc ina te d b y numb e rs a t a yo ung a g e E a rly life o f Arthur Ande rso n  Disc ipline , ho ne sty, a nd a stro ng wo rk e thic  K e ys tra its tha t Jo hn a nd Ma ry Ande rso n instille d in Arthur  Arthur wa s o rpha ne d a t a yo ung a g e  Hig h Sc ho o l Ca re e r  Wo rke d a full time jo b a nd a tte nde d e ve ning c la sse s 2

1/10/2019 E a rly Pro fe ssio na l L ife o f Arthur Ande rso n  Co lle g e Ca re e r a t Unive rsity o f I llino is  Wo rke d a s a c c o unta nt fo r Allis-Cha lme rs while a tte nding c la ss  Ac c e pte d e ntry le ve l jo b a t Pric e Wa te rho use  F irm wa s first o rg a nize d in Gre a t Brita in  Yo ung e st CPA in the sta te o f I llino is  At the a g e o f 23 E a rly Pro fe ssio na l L ife o f Arthur Ande rso n  E sta b lishe d pa rtne rship to pro vide a c c o unting , a uditing , e tc . Ande rso n, De la ny & Co mpa ny   De la ny le ft to g o his o wn wa y  Ar thur Ander sen & Company was established  1915- Arthur fa c e d his first pro fe ssio na l dile mma  “Sub se q ue nt e ve nt” – disc lo se d in fo o tno te s o f the F S 3

1/10/2019 Arthur Ande rso n & Co mpa ny  Dile mma with DuPo nt two de c a de s la te r fro m first dile mma  Dismisse d a s the ir a udito r fo r no t a g re e ing with DuPo nt  Ande rso n wa s o pinio na te d, stub b o rn, a nd “diffic ult”  “T hink stra ig ht, ta lk stra ig ht”  Critic s a dmitte d tha t Ande rso n wa s po int-b la nk ho ne st  100% inte g rity o r b e fire d b y Ande rso n Arthur Ande rso n & Co mpa ny  Arthur c re a te d a nic he fo r firm  Va rio us e ne rg y industrie s  E a rly 1930’ s, firm wa s a thriving pra c tic e  L e a ding re g io na l firm in the Midwe st  Gre a t De pre ssio n hit ha rd o n Arthur’ s c lie nts  Arthur Ande rso n c o nvinc e d b a nks to ke e p funding his strug g ling e ne rg y c lie nts 4

1/10/2019 Arthur Ande rso n & Co mpa ny  Arthur Ande rse n g a ine d re spe c t fro m le a ding fina nc ia l e xe c utive s  I nc re a se d re fe rra l o f c lie nts o utside o f Midwe st  Arthur wa s a spo ke spe rso n fo r his disc ipline  L o b b ie d fo r c o ntinuing pro fe ssio na l e duc a tio n (CPE ) re q uire me nt  Arthur die d in 1947  L e ft b e hind a firm tha t e mplo ye d 1,000 plus a c c o unta nts Arthur Ande rso n & Co mpa ny  L e o na rd Spa c e wa s the suc c e sso r o f Arthur  E a rne d a re puta tio n a s a no -no nse nse pro fe ssio na l  Ope nly c ritic ize d the pro fe ssio n fo r slo ppy sta nda rds  Ac c o unting Princ iple s Bo a rd (APB) e sta b lishe d in 1950  Re pla c e d with F ina nc ia l Ac c o unting Sta nda rds Bo a rd (F ASB)  Arthur Ande rso n & Co . e sta b lishe d wo rld’ s la rg e st priva te unive rsity  Arthur Ande rso n & Co . Ce nte r fo r Pro fe ssio na l E duc a tio n 5

1/10/2019 Arthur Ande rso n & Co mpa ny  L e o na rd Spa c e 's stro ng le a de rship a nd b usine ss skills  Re tire d in 1973- a rg ua b ly the mo st re spe c ta b le firm in wo rld  T hre e de c a de s la te r Arthur Ande rso n & Co mpa ny:  E mplo ye d 80,000 pro fe ssio na ls  Offic e s in 80 plus c o untrie s  Annua l re ve nue wa s $10 b illio n  I n la te 2001  F a c e d the b ig g e st c risis in firm’ s histo ry T he Wo rld’ s Gre a te st Co mpa ny  No rthe rn Na tura l Ga s Co mpa ny  F o unde d in Oma ha , Ne b ra ska , in 1930  Princ iple inve sto r  I nc lude d a T e xa s-b a se d c o mpa ny, L o ne Sta r Ga s Co rpo ra tio n  No rthe rn strug g le d with g a ining c usto me rs  Ho me “e xplo sio ns” c a use d b y na tura l g a s dro ve a wa y c usto me rs 6

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  During De pre ssio n No rthe rn g a ine d c usto me rs  “Co ld stric ke n a nd sha llo w-po c ke te d”  E xpe rie nc e d unlimite d so urc e o f c he a p la b o r during De pre ssio n  Allo we d No rthe rn to de ve lo p pipe line g rid in Midwe st  Co mpa ny b e c a me liste d o n Ne w Yo rk Sto c k E xc ha ng e in 1947  He lpe d with me e ting c a pita l re q uire me nts T he Wo rld’ s Gre a te st Co mpa ny  During 1970, No rthe rn b e c a me princ iple inve sto r in Ala ska n pipe line  T a p into Ca na da ’ s na tura l g a s re se rve s  I n 1980, No rthe rn c ha ng e d its na me to I nte rNo rth, I nc .  E xpa nde d sc o pe to o il e xplo ra tio n, c he mic a ls, a nd c o a l mining  I n 1985, I nte rNo rth purc ha se d Ho usto n Na tura l Ga s Co mpa ny  $2.3 b illio n a nd a c q uire d 40,000 mile s o f pipe line s 7

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  I n 1986, I nte rNo rth c ha ng e d its na me to E nr on  K e nne th L a y wa s c ho se n a s CE O  F o rme r c ha irma n o f Ho usto n Na tura l Ga s  L a y a do pte d a g g re ssive g ro wth stra te g y  Hire d Je ffe ry Skilling a s to p sub o rdina te s T he Wo rld’ s Gre a te st Co mpa ny  During the 1990s, Skilling c re a te d a pla n to tra nsfo rm E nro n  E ne rg y-tra ding c o mpa ny  I n e a rly 2001, Skilling b e c a me CE O  L a y re ta ine d the title o f c ha irma n o f the b o a rd 8

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  E nro n’ s 2000 a nnua l re po rt  60 pe rc e nt inc re a se in tra nsa c tio n vo lume  I nc re a se fue le d b y E nro nOnline  B2B (b usine ss to b usine ss) e le c tro nic ma rke t pla c e fo r e ne rg y industrie s  E nro nOnline pro c e sse d mo re tha n $335 b illio n o f tra nsa c tio ns  L a rg e st e -c o mme rc e c o mpa ny in the wo rld T he Wo rld’ s Gre a te st Co mpa ny 9

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  Ja nua ry 2001  L a y’ s ultima te g o a l fo r E nro n wa s to b e “ T he Wo rld’ s Gre a te st Co mpa ny”  June 2001  Skilling wa s sing le d o ut a s “the No .1 CE O in the e ntire c o untry”  E nro n wa s ha ile d a s “Ame ric a ’ s mo st inno va tive c o mpa ny”  Skilling wa s kno wn fo r b ra ssy, if no t ta c ky c o mme nts. T he Wo rld’ s Gre a te st Co mpa ny  T hro ug ho ut 2001, E nro n’ s sto c k pric e drifte d lo we r  Sto c k pric e we nt fro m $80 to mid-$30  T hird q ua rte r fo r E nro n  Myste rio us $1.2 b illio n re duc tio n in o wne r’ s e q uity  Re ve rsa l tra nsa c tio n  No te s Re c e iva b le s sho uldn’ t ha ve b e e n re c o rde d a s a sse ts, b ut a s a re duc tio n o f o wne r’ s e q uity. 10

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  Oc to b e r 16, 2001 pre ss re le a se  Wipe d o ut $600 millio n o f pro fits. Sto c k pric e plumme te d.  De c e mb e r 2, 2001  Pre ssure fro m c re dito rs, pe nding litig a tio n, a nd inve stig a tio ns fo rc e d E nro n to file b a nkruptc y.  L a rg e st c o rpo ra te b a nkruptc y a t the time (Wo rldCo m- $100 Billio n)  $60 b illio n lo ss to sha re ho lde rs T he Wo rld’ s Gre a te st Co mpa ny 11

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  Je ffre y Skilling sudde n a nd une xpe c te d re sig na tio n a s CE O  Suspic io us  Suspic io n pro mpte d She rro n Wa tkins(VP) to write a le tte r  Addre sse d to K e nne th L a y  Aske d q ue stio ns re g a rding the a c c o unting de c isio ns  L e tte r ma de pub lic T he Wo rld’ s Gre a te st Co mpa ny  Ho w did the y hide so muc h lo ss?  Use o f c o mple x tra nsa c tio ns  E nro n c re a te d do ze ns o f limite d pa rtne rships  Ca lle d SPE ’ s o r spe c ia l purpo se e ntitie s  Cre a tive na me s o f the se e ntitie s  Bra ve he a rt, Ra whide , Ra pto r, Co ndo r, a nd T a lo n  CF O na me d a fe w o f the se e ntitie s a fte r his c hildre n 12

1/10/2019 T he Wo rld’ s Gre a te st Co mpa ny  Wha t wa s the mo tiva tio n b e hind c re a ting a n SPE ?  “de b t a vo ida nc e ”  T hro ug ho ut the 1990’ s  Co mpa nie s to o k a dva nta g e o f SPE ’ s minima l le g a l a nd a c c o unting g uide line s  Dive rte d ma ssive a mo unts o f the ir lia b ilitie s to o ff-b a la nc e she e t e ntitie s T he Wo rld’ s Gre a te st Co mpa ny  So ld a sse ts a t g ro ssly infla te d pric e s to the ir SPE s  Allo we d la rg e r “pa pe r” g a ins  Pro fits infla te d b y unre a lize d g a ins o n inc re a se s in the ma rke t va lue o f it’ s o wn c o mmo n sto c k  Prima ry mo tiva tio n fo r e xte nsive SPE use  Gro wing ne e d fo r c a pita l during the 1990s  F ina nc ing c o mpa ny tra nsfo rma tio n 13