How does Jeffrey Skilling maximize his “self-interest”


The guy in the picture is the well-known Jeffrey Skilling. Before entering Enron, Mr. Skilling is consultant at McKinsey in the energy and chemical consulting practices and became one of the youngest partner there. He is a confident person. At his admission interview to HBS,  he stated that he was asked if he was smart, to which he supposedly replied, “I’m fucking smart”. Even before McKinsey, Mr. Skilling had connected to Enron with his analyst position in Huston at First City Bancorporation of Texas. The long time connection with Enron convinced him to quit McKinsey and join Enron as CEO of Enron Finance Corp. Of course, Lay expected a lot from him.

With Skilling’s idea — “Company does not need assets”. Enron transformed from an asset-heavy traditional energy company to the largest energy wholesaler of gas and electricity. Became the CEO of Enron in 2001, he made $132 million in the single year. Thanks to his management, Enron adopted “mark-to-market” accounting policy. By counting all future profit into present value, Enron grown way faster than most investor expected. However, it also mined the threat in the deep of the firm.

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Let us just calculate how much did Skilling make during his career in Enron. According to a report from Forbes, the average chief executive salary and bonus increased by 25% to $1.72 million between 1996 and 2000. The total CEO compensation, at the same period, increased 166% to an average of $7.43 million. And those are just the average, not what Skilling made. And in 2000 along, Enron’s top 5 executives were paid $282.7 million in total. As the leading executive, Skilling were clearly paid the most.

According to Enron’s board, the “key performance criteria” of bonus included “funds flow, return on equity, debt reduction, earnings per share improvements and other relevant factors.”  Also, “The basic philosophy behind executive compensation is to reward executive performance that creates long-term shareholder value.”download (1)

Skilling, with all his tricks in accounting, did made an improvement in Enron’s financial sheets. But clearly did not create any long-term shareholder valueoverall, as the firm filed bankruptcy at the end of 2001.

With his personal account filed with millions of dollars, Skilling was accused more than 30 counts of crime in different courts, and was filed guilty on 19 counts of them. He was sentenced 24 years and 4 months in prison with $45 million fines.Jeffrey Skilling

So did he maximized his “self-interest”? In the term of how much he made during his occupation, he did. But if you include the ending, which leads to the lost of freedom and millions of fine, I think he did not.

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2 thoughts on “How does Jeffrey Skilling maximize his “self-interest”

  1. I believe Jeff Skilling maximized both his own self-interest and that of Enron. His vision of improving the energy world for multiple players, including state enterprises, small businesses and other end customers, was in fact flawed. By taking advantage of regulatory loop holes, political lobbying and unstandardized markets, Skilling exploited the market. Enron was so powerful in its geographical capabilities that it could profit just from purchasing energy commodities in low-cost regions and selling in higher ones. Does this fulfill his mission of “improving” or making the commodity markets more transparent? I think it utilized its asset-light technologies to profit for itself rather than help others.

  2. Looks like Jeffery was not as smart as what he thought. In the short-run selling off all of your assets and fixing energy prices seemed to be pretty successful, but this proved to not be sustainable in the long-run. I think Jeffery got lost in trying to make the company look good, rather that actually making the company good. I also agree with Scott I think the company was more concerned in profit than providing a service for others.

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