Enron Case

Enron had the largest bankruptcy in America’s history and it happened in less than a year because of scandals and manipulation Enron displayed with California’s energy supply. A few years ago, Enron was the world’s 7th largest corporation, valued at 70 billion dollars. At that time, Enron’s business model was full of energy and power. Ken Lay and Jeff Skilling had raised Enron to stand on a culture of greed, lies, and fraud, coupled with an unregulated accounting system, which caused Enron to go down. Lies were being told by top management to the government, its employees and investors. There was a rise in Enron 's share price because of pyramid scheme; their strategy consisted of claiming so much money to easily get away with their tricky ways. They deceived their investors so they could keep investing their money in the company.

Two years after Enron filed for bankruptcy in 2001, Nancy b. Rapoport wrote this essay expressing her unique perspective on the real cause of Enron’s demise. This essay catches the reader’s attention instantly, because unlike abundant other articles written on the biggest corporate scandal in American history, the author here rejects Jeff Skilling’s (former president of Enron) argument1 of what brought about Enron’s downfall. She instead uses another metaphor, arguing that Enron’s downfall was more like Titanic’s-

The PRC was a powerful mechanism for preventing the emergence of subcultures running counter to the organizational tone set by Enron’s hierarchy. Members of the Risk Management and Assessment Group who reviewed the terms and conditions of deals (and who were largely inexperienced recent MBA graduates) as well as internal auditors, were fearful of retaliation in the PRC from persons whose deals they were reviewing (Chaffin and Fidler 2002; Dallas 2003). At best, control was compliance-based, seldom encouraging employees to follow either the letter or the intent of laws (Dallas 2003). This punitive environment brought the consequences of dissent sharply into focus. Enron’s culture has been characterized as “ruthless and reckless … lavish rewards on those who played the game, while persecuting those who raised objections” (Chaffin and Fidler 2002, 4-5). Led by Skilling’s cavalier attitude to rules, top management conveyed the impression that all that mattered was for employees to book profits. In sum, this led to an erosion of employees’ confidence in their own perceptions and, most crucially, to further compliance with the organization’s leaders in a way that strengthened conformist behavior. Former employees have noted how “loyalty

In this case of Enron the corporate culture played a vital role of its collapse. It was culture of full of moneymaking strategies and greed, in the firm Greed was good and money was God. There was no or very little regards for ethics or the law, they operated as there was no law and ethics in the world (Enron Ethics, 2010). Such culture affected all the employees of the firm from top to down. Organizational culture supported unethical behaviour and practises, corruption, cheating and those were all widespread. Many executives and managers knew that the firm is following illegal and unethical practises, but the executives and the board of directors did not knew how to change this unethical culture, the firm used creative accounting and were making showing misleading profits every day. Reputation management enabled them carry on their illegal and unethical operations. Moreover if the company made huge Revenue in the unethical way then the new individual who joined the firm would also have to practise all those unethical practises to survive in the company. All of the management was filled by greed and ambition, their decisions became seriously imperfect, thus the firm fell back and managers had to pay in the price in the form imprisonment and fines. Greed is the main key factors that brought the Enron “the most innovative company” to downfall. Enron was looking into the ways of

When looking at the employees’ point of view on the scandal, we first start with the executives. Ken Lay, chairman of Enron, Jeff Skilling, CEO, and Andy Fastow, CFO, were the masterminds behind the huge profits. Skilling was in charge of somewhat changing the face of Enron. He took the company from being solely a power company, to a commodity trading company. To quote Alternet, “They tried to trade

Even the small profits reported by Enron in 2000 were eventually determined to be only a illusion by court-appointed bankruptcy examiner Neal Batson. Batson’s report reveals that over 95% of the reported profits in these two years were attributed to Enron’s misuse of MTM and other accounting techniques. But while financial analysts could not be expected to know that the company illegally manipulated the earnings, the reported profit margins in 2000 were so low and were declining so steadily that they should have merited ample skepticism from analysts about the company’s profits.

To finance Enron’s existing activities, they needed massive amounts of capital. Most notable were the special purpose entities also known as SPE’s that chief financial officer Andy Fastow created for Enron. These off balance sheet subsidiaries were created primarily to obtain additional financing without having to tarnish its balance sheet with additional long term debt. In conjunction with these SPE’s, Andy Fastow created many complex financial structures which allowed Enron to continue its operations without having to account for debt or losses that law abiding corporations would place on their balance sheet or income statement.

The Enron Corporation failures made world headlines for many reasons ranging from greed from its executives, the alleged malpractice and criminal behaviours, and its quick and disastrous collapse. The most critical factor in Enron’s melt down was the use of creative and manipulative accounting practices to distort reported profitability and indebtedness that befell the corporation (A. Holt and T. Eccles, 2002) The accounting practices involved in this case are the revenue recognition criteria adopted by Enron Corporation, Market to Market strategies, the use of Special Purpose Entities, booking to cost as assets and the corporate governance practices.

Enron’s collapse has sent shockwaves all over the financial world raising serious questions about corporate governance. Arthur Andersen turned a blind eye as the money disappeared. As long as there where a set of off the books, unregulated private partnerships to take on debts, hide losses and kick off inflated revenues, the executives were able to keep bond rating agencies happy. Andrew Fastow took the most blame because he was working on both sides of every transaction manipulating Enron financial statements to enrich him and other service executives.

Enron made billions in profits in the early years, until deregulation promoted competition from other companies. When this happened, Kenneth Lay, CEO and Jeffery Skilling, COO went on a mission to keep the company on top. These two top executives wanted to keep the billion dollar bottom line alive; at any cost. The more the executives made in profits, the further away from GAAP, the financial statements strayed. They obscured the reality of the business’ rising debt by hiding liabilities and failing assets. Author C. Thomas

It seems that Fastow, Enron’s CFO, along with Skilling, Enron’s COO/CEO, played the biggest roles in the demise of the company; although the intricately complicated transactions being completed could not have been done by only one person, it has been alleged, and found to be true in court, that Fastow was a key player in creating the ‘off-the-balance-sheets’ entities to hide debt and inflate the true picture of Enron’s financial soundness. (Ferrell, O. C., Fraedrich, J., & Ferrell, L. 2009)

Enron was a Houston Based natural gas Pipeline Company formed by merger in 1985.The corporation Enron was effectively involved in energy broker, electronic energy training, global commodity and options trading. Enron was long viewed as star of the stock market. Enron was America’s seventh largest corporation. Enron was steady company with good revenue, a large part of Enron case was made up of paper.

Enron went insolvent. The problem for Enron was that after some achievements, the traders began to have some financial failures and Enron was no longer making a profit. The losses could be enclosed up in a number of ways and the deficits enclosed by borrowing from Wall Street. Enron’s complex financial statements were unclear to shareholders and experts. In adding, its difficult business model and wrong practices required that the firm use accounting restrictions to misrepresent incomes and adjust the balance sheet to show favorable performance. The mixture of these issues caused the insolvency of the

ENRON formed by a merger between houstan natural gass an omaha based internorth . Kenneth Lay, who had been the (CEO) of Houston Natural Gas, became Enron's CEO , and quickly makes Enron into an energy trader and supplier.

Enron Corporation is one of the companies in the United States suffered from significant losses. Due to the embezzlement of money, the company filed bankruptcy in December 2001 with liability of more than 50 billion USD. The reason of failure of Enron case are related to one of the staff, Jeffrey Skilling who formed the executive staff to find and use the void that exists in accounting, special purpose entities, and production of precise financial statements which can hide billions of debt consequential from the project and agreement that the company failed.