The Fall of Enron

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Case: The Fall of Enron

1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information.

Enron was an admired company prior to 2000 because at that time it surfaced as a frontrunner in the deregulated energy market, making it possible to sell energy at higher prices, thus significantly increasing its revenue. The company, through efficient management team, has built leading businesses in energy trading and international energy asset construction. The company has managed to maintain high return from its investments through ideal placement of resources by creating long term and fixed price contracts with clients that guaranteed stable …show more content…

The company was constantly emphasizing its stock price. The policy of stock option awards caused management to create potential situations of rapid growth in efforts to give the appearance of reported earnings to meet Wall Street's expectations. Although Enron's compensation and performance management system was designed to retain and reward its most valuable employees, the system contributed to a dysfunctional corporate culture that became interested only in short-term profits to maximize bonuses. In addition, accounting results were recorded as soon as possible to keep up with the company's stock price. This practice helped ensure deal-makers and executives received large cash bonuses and stock options.
Enron's auditor firm was accused of applying thoughtless standards in its audits because of a conflict of interest. The firm was generating a large amount of money for its consulting fees for Enron. The firm's methods where questioned when it seemed as though the reports were completed only for the annual fees to be collected. Furthermore, it was also criticized for lack of experience in reviewing the files.
The Enron board of directors failed to closely analyze market trends, which would have led to better decisions being made when it came to acquisitions and mergers. Because of this the company found it

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