The May 24th, 1993 issue of Forbes magazine featured an article by Toni Mack that highlighted the hidden risks being taken by Wall Street darling Enron Corporation. That was thirty years ago today.
Despite its stellar stock performance, the fact that Enron sold or transported a fifth of the nation’s natural ga, and its status as the world’s third largest independent power producer, Enron had assumed a lot of risk. Specifically, it adopted the practice of valuing its assets according their market value rather than the price Enron had paid for them.
Mack identified the principle problem with this approach with a quote from Enron rival Jake Ulrich: “If you accelerate your income, then you have to keep doing more and more deals to show the same or rising income.” Enron had little margin for error.
For as long as Enron did well, it was manageable, but over time Enron resorted to more and more aggressive accounting techniques, and eventually began (fraudulantly) hiding losses.
In the wake of the 1999-2000 bursting of dot-com bubble, Enron lost its margin for error, and collapsed in the biggest bankrutpcy in U.S. history (up to 2008).
Toni Mack felt a certain … professional pride … as a financial journalist for her work covering Enron. According to her obituary, “she pulled back the on a certain company’s accounting machinations, much to the chagrin of said company’s upper echelons of management” She was “credited with sounding an early alarm of trouble at Enron.”
Most inspiring to me is that Toni Mack did all this while combatting multiple sclerosis during the last 32 years of her life. She passed away in 2016 at the age of 60. [Obituary]
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