When Leaders Ignore the Rules

I could imagine the tears dropping down the cheek and the pain felt by the loved ones of Jeffrey K. Skilling; a 52-year old man, who served as the CEO of Enron corporation from February to August 2001, as he was sentenced to 24 years in prison.

 

Enron, an energy-trading company based in Houston, Texas had risen as high as number 7 in Fortune magazine’s list of top 500 US companies.

 

In 2000, the company had employed 21,000 people and posted revenue of $111 billion.

 

However, the next year, Enron’s stock price began ebbing. In fact, it dropped from $90.75 in August 2000 to $0.26 by closing on November 30, 2001.

 

On December 2, 2001, after Dynegy, another energy company backed out of a planned $8.4 billion buy-out in late November, Enron filed for bankruptcy. By the end of the year, Enron’s collapse had cost investors billions of dollars, wiped out some 5,600 jobs and liquidated almost $2.1 billion in pension plans.

 

The question is what could have led to the collapse of a corporation whose asset is valued at $60 billion?

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In 2000, Stewart Parnell became the President and CEO of Peanut Corporation of America (PCA); a company founded in 1967 by his father Hugh Parnell.

 

PCA was a company that provided peanut and peanut butter products primarily to the “institutional food” market (schools, prisons and nursing homes), to food manufacturers for use in cookies, snacks, ice cream, and dog treats, and to other low-end markets.

 

By 2007, the company had grown to 90 employees and was doing $25 million in annual sales. It was estimated to be manufacturing roughly 2.5% of processed peanuts in the U.S. at that time.

 

However, In late 2008 and early 2009, as a result of the Salmonella contamination event, 9 people died and at least 714 people (half of them children) fell ill, all from food poisoning after eating products containing contaminated peanuts.

 

This contamination triggered the most extensive food recall in U.S. history up to that time, involving 46 states, more than 360 companies, and more than 3,900 different products manufactured using PCA ingredients.

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On February 13, 2009, Peanut Corporation of America ceased all manufacturing and business operations and filed for bankruptcy liquidation.

 

From February 2009 investigation continued and by September 2015, Stewart Parnell was sentenced to 28 years in prison.

 

When business leaders ignore the rules or laws that guide their conduct in the business environment, the world experience havoc, pain, death and even the collapse of such an organization that it trusted to provide it with products that will be of help to its inhabitants?

 

In the case of PCA, investigation revealed that their processing was being done without the knowledge and oversight of the Food and Drug Administration (FDA), and other food handling and processing areas had gone long periods without federal inspection.

 

In fact, one of the pieces of evidence against Stewart showed that he participated in a scheme to fabricate certificates of analysis (COAs) accompanying various shipments of peanut products. COAs are documents that summarize laboratory results, including results concerning the presence or absence of pathogens.

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On several occasions, he participated in this scheme to fabricate COAs stating that shipments of peanut products were free of pathogens when, in fact, there had been no tests on the products at all or when the laboratory results showed that a sample tested positive for salmonella.

“Enron” became synonymous with large-scale corporate fraud and corruption. The investigation by the Securities and Exchange Commission and the U.S. Justice Department revealed that Enron had inflated its earnings by hiding debts and losses in subsidiary partnerships.

 

Lay Kenneth, the founder and chairman of Enron and Jeffrey K. Skilling, conspired to cover up their company’s financial weaknesses from investors. The investigation also brought down accounting giant Arthur Andersen, whose auditors were found guilty of deliberately destroying documents incriminating to Enron.

You see, when leaders lose touch with people who are affected by their decisions – the customers, employees etc – and are hyper-focused on the numbers, they are bound to make unethical decisions that when the repercussion shows, could be irreparable.

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