The painful story of Ken Lay and Enron offers us many lessons about managing and investing. My personal opinion is that Mr. Lay was a good man who got a little carried away and made a few key mistakes. He
should be judged on his overall career as an innovative executive and
generous contribution to his community and not just the mistakes that
lead to the collapse of Enron.
I first met Ken Lay and Enron style of the company, while the United States to the management of the Asian Development Bank in Manila. Manila experienced severe blackouts and Enron won one of the many fast-track contracts offered by the Philippines government to generate the capacity to quickly add nice thick margins. During 1994-1995, I help Asian developing. Energy projects at Enron
At that time, Ken Lay and Enron were both rising stars and the darlings of the investment world.
Too often, investors forget that the most important factor to consider when evaluating a company is the quality and character of the management. You can get the best products, lucrative and profitable markets and the best balance, but if management fails the whole story and the share will crumble.
A related problem is the set-up of the board of directors of a company and whether it is independent and has strong oversight of management. Another important factor to consider is the culture of the company. His economic incentives offered to management and staff closely the interests of shareholders?
Finally, it is easy to understand the business and its operations and financial transparency, so that investors can evaluate. The value and profitability of the company
Unfortunately, Enron not all four tests. Let's briefly look at each failure.
First, when I was with Enron, Mr. Lay had a strong and very capable COO Rich Kinder who made sure the trains ran on time. It was an effective partnership. Ken Lay was Mr. Rich Kinder was Mr. Outside and Inside. But it's Child was not going to wait forever to CEO and apparently for personal reasons, Mr. Lay blocked his appointment as CEO, leading to his eventual departure to the highly successful pipeline company Kinder Morgan forms become. Eventually, Mr. Jeffrey Skilling was named CEO and while he is intelligent and hard drive, he missed the character, experience and managerial skills needed for the job. In hindsight, this would have been a red flag for investors. When Skilling abruptly left the company in 2001, Mr. Lay returned to the CEO position, apparently without sufficient knowledge of the details of the financial problems and mismanagement of Enron.
Second, Board of Directors of Enron was mostly allies and friends of Mr. Lay and inadequate supervision Enron management and operation. Shareholders should see that this was the case and demanded more say in the appointment of experienced and independent directors as a check on management.
Third, the culture of Enron was very short-term oriented. Substantial bonuses were linked to demanding, but short-term performance objectives that led to the employees to make shareholder value for long-term projects that use sometimes made no sense. My perception was that for many workers, Enron was a chance to try to earn a lot of money and then go do something else. The problem was they did not their entrepreneurial activities but rather money fund shareholders with their own money. CFO Andrew Fastow was just one example of the problem.
Finally Enron trading and so-called innovative financing techniques were so complex and opaque that even experienced Wall Street analysts could not figure out how or when Enron was making money. So when questions were raised about certain questionable financial transactions, investors lacked confidence to hang by the turbulence hard and ran for the exits at the same time. Investors were without even understanding its business and the risks inherent in its activities in Enron stock piled.
Well that's my opinion what went wrong with Enron and investors in Enron, but what does all this have to do with ETFs?
First, if Ken Lay had instead of such a high concentration of Enron stock in a margin account, a balanced global ETF portfolio he may have faired better in court. One of the main charge against him was that if the stock price fell, he sold Enron stock while he stated that he buys in public.
For investors, it is logical to ask how they can be expected that the quality of management, supervisory board, the culture and incentives for workers assess and understand all the fine print in the financial statements. The answer is that the vast majority of investors have neither the experience nor the time to do this.
What if instead of buying one too many Enron stock, would just use their energy spread over a basket of energy companies by buying an energy ETF, such as the S & P Global Energy (IXC) ETF investors? Even at its peak market capitalization, Enron would at best have been. 6-7% of the basket Even better if the investor has to lock in profits or limit losses. A trailing stop loss in place
If you have the time and inclination, go ahead and do some stock selection but keep the lessons of Enron and Ken Lay in mind and puts the core of your overall portfolio in ETFs.
Carl T. Delfeld President & Publisher Chartwell Partners Carl has over twenty years experience in the global investment business with a strong background in Asia.
Author of global investor primer "The New Global Investor"
President of global investment consulting firm Chartwell Partners
Publisher of the Chartwell Advisor ETF Report and Asia Pacific Growth
Columnist on global investing with Forbes Asia: "Global Gambits"
Former U.S. Representative to the Board of Directors of the Asian Development Bank
President of the global economic strategy think tank Chartwell America
Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury
Former member of the Asia Pacific Economic Cooperation Committee USA
Former investment executive with Robert Baird & Company and UBS
Graduated from the Fletcher School of Law and Diplomacy with economics scholarship from US-Japan Friendship Commission
Exchange student at Sophia University, Japan's Ministry of Education Fellow at Keio University
I first met Ken Lay and Enron style of the company, while the United States to the management of the Asian Development Bank in Manila. Manila experienced severe blackouts and Enron won one of the many fast-track contracts offered by the Philippines government to generate the capacity to quickly add nice thick margins. During 1994-1995, I help Asian developing. Energy projects at Enron
At that time, Ken Lay and Enron were both rising stars and the darlings of the investment world.
Too often, investors forget that the most important factor to consider when evaluating a company is the quality and character of the management. You can get the best products, lucrative and profitable markets and the best balance, but if management fails the whole story and the share will crumble.
A related problem is the set-up of the board of directors of a company and whether it is independent and has strong oversight of management. Another important factor to consider is the culture of the company. His economic incentives offered to management and staff closely the interests of shareholders?
Finally, it is easy to understand the business and its operations and financial transparency, so that investors can evaluate. The value and profitability of the company
Unfortunately, Enron not all four tests. Let's briefly look at each failure.
First, when I was with Enron, Mr. Lay had a strong and very capable COO Rich Kinder who made sure the trains ran on time. It was an effective partnership. Ken Lay was Mr. Rich Kinder was Mr. Outside and Inside. But it's Child was not going to wait forever to CEO and apparently for personal reasons, Mr. Lay blocked his appointment as CEO, leading to his eventual departure to the highly successful pipeline company Kinder Morgan forms become. Eventually, Mr. Jeffrey Skilling was named CEO and while he is intelligent and hard drive, he missed the character, experience and managerial skills needed for the job. In hindsight, this would have been a red flag for investors. When Skilling abruptly left the company in 2001, Mr. Lay returned to the CEO position, apparently without sufficient knowledge of the details of the financial problems and mismanagement of Enron.
Second, Board of Directors of Enron was mostly allies and friends of Mr. Lay and inadequate supervision Enron management and operation. Shareholders should see that this was the case and demanded more say in the appointment of experienced and independent directors as a check on management.
Third, the culture of Enron was very short-term oriented. Substantial bonuses were linked to demanding, but short-term performance objectives that led to the employees to make shareholder value for long-term projects that use sometimes made no sense. My perception was that for many workers, Enron was a chance to try to earn a lot of money and then go do something else. The problem was they did not their entrepreneurial activities but rather money fund shareholders with their own money. CFO Andrew Fastow was just one example of the problem.
Finally Enron trading and so-called innovative financing techniques were so complex and opaque that even experienced Wall Street analysts could not figure out how or when Enron was making money. So when questions were raised about certain questionable financial transactions, investors lacked confidence to hang by the turbulence hard and ran for the exits at the same time. Investors were without even understanding its business and the risks inherent in its activities in Enron stock piled.
Well that's my opinion what went wrong with Enron and investors in Enron, but what does all this have to do with ETFs?
First, if Ken Lay had instead of such a high concentration of Enron stock in a margin account, a balanced global ETF portfolio he may have faired better in court. One of the main charge against him was that if the stock price fell, he sold Enron stock while he stated that he buys in public.
For investors, it is logical to ask how they can be expected that the quality of management, supervisory board, the culture and incentives for workers assess and understand all the fine print in the financial statements. The answer is that the vast majority of investors have neither the experience nor the time to do this.
What if instead of buying one too many Enron stock, would just use their energy spread over a basket of energy companies by buying an energy ETF, such as the S & P Global Energy (IXC) ETF investors? Even at its peak market capitalization, Enron would at best have been. 6-7% of the basket Even better if the investor has to lock in profits or limit losses. A trailing stop loss in place
If you have the time and inclination, go ahead and do some stock selection but keep the lessons of Enron and Ken Lay in mind and puts the core of your overall portfolio in ETFs.
Carl T. Delfeld President & Publisher Chartwell Partners Carl has over twenty years experience in the global investment business with a strong background in Asia.
Author of global investor primer "The New Global Investor"
President of global investment consulting firm Chartwell Partners
Publisher of the Chartwell Advisor ETF Report and Asia Pacific Growth
Columnist on global investing with Forbes Asia: "Global Gambits"
Former U.S. Representative to the Board of Directors of the Asian Development Bank
President of the global economic strategy think tank Chartwell America
Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury
Former member of the Asia Pacific Economic Cooperation Committee USA
Former investment executive with Robert Baird & Company and UBS
Graduated from the Fletcher School of Law and Diplomacy with economics scholarship from US-Japan Friendship Commission
Exchange student at Sophia University, Japan's Ministry of Education Fellow at Keio University
