The Enrons of Finance: PR’s Crisis Management Methods

You worked for American Global Conglomerates for almost forty years. Starting out as a clerk in the records department just after high school, you spend five years in the grind filing paperwork and retrieving records for higher ups.

At twenty-three, you advance into a management position through the American Global Conglomerates management training program. By thirty, you are in charge of the same records office you began your career in.

You do this for twenty years, and then you are offered a white shoe position with a corner office window overlooking one of most beautiful skylines. As an administrative assistant to the CFO, the position offers you one of the best stock- option plans for retirement, a generous annual leave package, and a company car and apartment.

At about sixty, after traveling the world as a part of your job, you think about winding down your high-powered career. In a little over forty years, you have amassed a small fortune.

You have two vacation houses, one in the European countryside, in addition to your personal apartment. You have several investment accounts trading comfortably on the stock market.

…And your retirement package guarantees that you and your children will never have to work unless they want to.

Then, as you are picking up your morning coffee from the local coffee shop one day, the barista asks you casually, “So, what are you gonna do since Conglomerates has gone belly up?”

“Uh, belly up?” Without answering the young woman, you grab your joe and head to the office where the buzz of bad business is in the air. By the end of the trading day, everything you have earned over the lifetime of your career is gone. There is nothing left. Nothing!

This vignette was the real life scenario for many who worked for Enron.

What was Enron?

Enron was a commodities-based energy giant out of Houston. Known for company excess, the company was rumoured to have spent thousands on lavish events celebrating their successes and personal milestones.

Their crime?

In short, they hid financial losses by projecting the profits of one of their energy suppliers. They, then hid these losses and tricked investors into believing the company was more profitable than it was.

The fallout?

Everyone and anyone connected to this scandal lost. Shareholders lost close to $74 million, employees lost their retirement accounts, and some lost their jobs.

And now for some crisis management….

It is easy to understand why a company as large as Enron would want to hold onto its reputation because, at its peak, the company was considered the darling among energy suppliers.

Even so with accusations of financial malfeasance swirling into a category 5 hurricane, Enron’s financial firm tried to quiet the storm of controversy by hiding information. Arthur Andersen, Enron’s accounting firm, basically destroyed documents that would expose the company’s financial chicanery.

What Enron should have done….

As a part of crisis management, most PR organizations have a crisis management action plan ready to go in case of events like these. These activities usually involve:

  • Understanding the situation.
  • Publicly taking responsibility or addressing the issue, which involves transparency and telling the truth.
  • Preparing before the fallout.
  • Trying not to respond with a knee-jerk reaction or fanning the flames of controversy.
  • Developing strong organizational brand and cohesion.

What they actually did….

Enron’s ploy to handle this crisis which robbed its investors and loyal employees of their financial security was to discard important documents.

But Enron has not been the only company guilty of covering up information integral to investigating financial misdeeds either.

  • In 2002, WorldCom inflated assets costing investors to lose millions, in addition to countless job losses. Their response was to hire lobbyist and consultants to defend them in Congress.
  • In 2008, Lehman Brothers hid more than $50 billion loans by disguising them as sales. Their response was to avoid media all together.
  • In the same year, Bernie Madoff was found to have duped investors of more than $64 million dollars through a Ponzi scheme. With his sons as his accusers, Madoff could not escape being eaten alive by the public.

…And the list goes on.

Corporate scandal will always be a part of the American economic landscape, BUT it is the way organizations move into action to resolve these crisis that determines whether they can weather the storm.

In today’s fast-paced, social media-soaked environment, information spreads quickly and sometimes inaccurately. A crisis management team organized around a team of professionals can save an organization’s reputation.

Ultimately, crisis management helps organizations:

  • Repair the company’s reputation.
  • Address legitimate problems.
  • Build trust with their publics.
  • In rare cases, compensate the public for its losses.

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