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Home > Business Ethics Finance Library > Innovation Corrupted: The Origins and Legacy of Enron’s Collapse

Business Ethics Finance Library

Innovation Corrupted: The Origins and Legacy of Enron’s Collapse

Malcolm S. Salter (2008)

Why Read It?

  • Analyzes the collapse of Enron, and the management behavior and practices that took the company from the most lauded of its generation to bankruptcy.

  • Examines how Enron’s risk analysis and control system failed to counteract its management style, and why success built without ethical foundation can lead to disaster.

  • Recommends actions that can be taken to prevent similar corporate breakdowns in the future, including changes to regulatory oversight, executive compensation, and performance measurement.

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Getting Started

Innovation Corrupted is a well-researched and analytically rigorous examination of the causes of the collapse of Enron in 2001, the largest bankruptcy in American economic history. Salter examined the technical analysis and sworn testimonies in court documents, obtained internal Enron documents, and interviewed former Enron executives and staff. He shows how Enron executives maximized opportunities for enormous personal gain, distracting them from the responsibilities of institutional integrity, sound corporate governance, and ethical working practices.

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Malcolm S. Salter is professor of business administration emeritus at the Harvard Business School, where he has been a member of the faculty since 1967. He has previously taught at the Harvard Law School and the Kennedy School of Government. He was president of Mars & Co. from 1986 to 2006.

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  • Presents a historical overview of Enron’s rise, strategic successes and failures, its business model, and how its top executives managed the business.

  • Discusses how warning flags were ignored both within the business and by others, who instead focused on the capital markets and profit-making.

  • Analyzes why external watchdogs, such as security analysts, credit rating agencies, and regulatory authorities, failed to publicize Enron’s problems.

  • Looks at how Enron sold overvalued and underperforming assets off-balance-sheet, and how these complex entities managed reported earnings and minimized reported debt to support the company’s credit rating and stock price.

  • Recommends a private-equity model of corporate governance to help solve possible governance breakdowns in public companies, proposing that directors should adopt such a model to ensure proper oversight.

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  • Shows the impact of declining corporate ethical standards, failings at board level, and the collusion of external intermediaries in the collapse of Enron.

  • Proposes practical recommendations for preventing future Enron-type disasters, including board members having a sound knowledge of the business, improved executive incentivization, and ethical discipline being instilled throughout the organization.

  • Considers the collapse in terms of managerial arrogance, which led to ill-advised diversification and badly implemented administrative processes.

  • Discusses why Enron’s board failed to detect and prevent violations of accounting principles and rules.

  • Examines the collusion of investment banks in misrepresenting the financial conditions at Enron.

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Enron’s collapse involved the corruption of a remarkable strategy of innovation.

Before fraud at Enron there was fatal thoughtlessness and incompetence among its executives.

Overwhelmed regulatory systems were vulnerable to manipulation and evasion—particularly at Enron’s creative hands.

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Further reading


  • Swartz, Mimi, and Sherron Watkins. Power Failure: The Inside Story of the Collapse of Enron. New York: Doubleday, 2003. The story of the Enron accountant who first tried to alert management to the accounting fraud.

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