Subject: latest draft
don ,
attached is my latest effort . it entailed fairly drastic " restructuring
and reorganization " of the earlier draft . my revision effort has been
directed at improving the focus of the paper . the new story is the following :
1 . enron was formed as a regulated gas pipeline company in the mid - eighties .
2 . economic and competitive conditions conspired to force a dramatic
reorganization of the company almost immediately . the result was the
creation of a new , unregulated energy trading operation . the strategy of
the new unit was to capitalize on business opportunities in the
deregulation of markets that was occuring at the time ( mid - eighties until
now ) .
3 . the business model adopted for the new unregulated business was that of
a " gas bank " . the analogy to a commercial bank posed a very difficult
problem to enron ' s management in that there was no source of liquidity to
the market from a central bank authority . as a consequence enron had to
develop its own very elaborate risk management procedures .
4 . another consequence of the new business model was that it required a
different set of employee skills and talents . specifically , it required
were bright , energetic and innovative individuals capable of identifying
entrepreneurial opportunities and starting new businesses . furthermore , a
new , flatter organizational structure entailing decentralized decision
making was required to facilitate quick response to changing market
conditions . to monitor and manage this new " empowered " labor force
required that the firm develop new personnel policies and procedures .
5 . three primary tools of personnel management were adopted : ( i ) measure
performance semi - annually , ( ii ) tie compensation closely to performance ,
and ( iii ) allow personnel free movement within enron to seek out the best
opportunities .
6 . other attributes of the enron model include consideration for asset
optionality , recognition of the value of networks in adding value to
trading platforms , and the use of mark - to - market accounting for business
transactions as a means of ensuring transparency and promoting prompt actions .
if my " story line " sounds better than the draft i have attached its because
its the last thing i ' ve written . at any rate i look forward to hearing
your comments and to getting this wrapped up .
thanks and i look forward to seeing you in february .
john
- enron _ paper _ 1 _ 26 _ 01 . doc
john d . martin
carr p . collins chair in finance
finance department
baylor university
po box 98004
waco , tx 76798
254 - 710 - 4473 ( office )
254 - 710 - 1092 ( fax )
j _ martin @ baylor . edu
web : http : / / hsb . baylor . edu / html / martinj / home . html