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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Whenever someone hears the word "Enron" today, they usually think of the transgressions committed by the top-level executives who successfully managed to destroy the company's reputation and achievements.
Enron started as a sound company that had a promising future in the oil and energy business. The companies CEO and CFO were charged on 35 different accounts of fraud, conspiracy, and insider trading that cleared most of its employee’s retirement pensions and billions of dollars for others (Unknown, 2016). It is impossible to account for every transaction that a company will produce, but the revamping of government
Enron was the country’s largest trader and marketer for electric and natural gas energy. Its core business was buying energy at a negotiated price and later, selling the energy when prices increased. As an energy broker, Enron provided a service by allowing producers to negotiate a certain price while Enron took the risk that prices would fall below what it bought energy. Buyers of energy also benefited because Enron could ensure the supply of energy. In 2000 Enron was listed number five on the Fortune 500. What happened to the company which was among the most admired for vision and quality thinking? Enron was the company that held virtual assets and not the real assets, such as power stations, which were capital
The Enron Corporation started in 1985 by Kenneth Lay and was the result of a merger between Houston Natural Gas and InterNorth Corporation (Madsen & Vance, 2009). Enron had the biggest gas transmission system in the U.S which consisted of a network of 38,000 miles of pipeline (Giroux, 2008). After the addition of Jeffrey Skilling, Enron transformed itself from a producer and distributor of natural gas to a trading company (Chandra, 2003). Enron lobbied hard for deregulation and was capable of being able to trade almost anything (Chandra, 2003).This idea required vast amounts of liquidity (Chandra, 2003). Enron’s revenue began to increase at a rapid speed (Chandra, 2003). Skilling developed a workforce that enabled the concealing of billions of dollars through the use of special purpose entities, fraudulent financial reporting, and accounting inadequacies (Giroux, 2008). Enron committed fraud over an extended period of time to manipulate earnings in order to maintain compensation of central executives. Despite the collapse of Enron, many executives were paid millions of dollars while other Enron workers were terminated and lost all of their retirement funds (Giroux, 2008). Enron has went down in history as not only being the biggest bankruptcy in U.S. for that time period, but also the largest audit failure (Giroux, 2008).
Enron is known worldwide for being responsible for one of the largest corporate scandals in U.S History (History.com Staff). This once well-respected corporation rose as high as number seven on Fortune magazine’s list of the top 500 U.S. companies and employed over 21,000 people (History.com Staff). However, after failed attempts of hiding their large-scale corporate fraud, corruption, and scandalous activites, the corporation was forced to file for bankruptcy which ultimately led to the collapse of the entire corporation (Wall Street Club).
We will first consider COA 1. Enron at one time was a great company that hired good people that believed in doing things right, and they were known for being a model corporation. In fact in 1999 Enron was named by Fortune as "America 's Most
After years of appearing to be growing financially, Enron was on top of the world. By the end of the 1990’s Enron was named Fortune’s, “100 Best Companies to Work for in America” and “America’s Most Innovative Company”, six years in a row. Little did the public
Enron was a major natural gas company, which was created in 1985. Enron was audited by the public accounting firm Arthur Andersen. It has not been confirmed when Enron began falsifying its records, but it is roughly around 1995 (Douglas O. Linder). Enron falsified its records by taking past assets and claiming them as current. This made the company 's financial records look very good with a large income coming into the company. These reports made Enron the fifth largest company in the Fortune 500. The report was shown to the public stock and shareholders. From this report many people would invest into Enron because of its large source of income. As people invested in the company it increased the company 's value. Enron then decided to use its employees 401(k)’s to its advantage and invest these 401(k)’s into the stock of Enron. Although the company 's records were in great shape, the company was losing lots of money to its ever increasing competition from the market. People got suspicious of how the company became so big. This is what began the
Enron was the largest company for energy and natural gas made possible through the merging of Houston Natural Gas and InterNorth based in Omaha. The merger made Enron the largest energy trader in the country and the seventh largest in the world. The company advanced into new fields of business by launching a broadband service unit and Enron online, where people can go to trade commodities. Enron rose quickly to become one of America’s most valuable company. It had a peak of $100 billion in revenue and it was taking the market by storm. The company had many major projects and had plans to expand into foreign countries. With the much celebrated success, Enron would have a greater fall than its rise because of mismanagement and poor accounting practices. The company was known for hiring the smartest individuals in the country, but that did not prevent the company from its embarrassing collapse. Enron collapsed with millions of dollars of pension funds and about 5600 people were unemployed. The company that was thought to be performing in the eyes of the public was actually in deep trouble behind the curtains. The big question many people ask is what caused Enron’s collapse? The truth of the matter is that, Enron’s collapse was not caused by just one thing, it was caused by many things such as theft, lies, poor accounting practices, lack of auditing, political factors, and conspiracy. This is what Enron represented about a decade after the merger, this is how the company became
The story of Enron’s bankruptcy, an US company that provided products and services related to natural gas, electricity and communications has been one of the most serious cases of unethical practices in the American economy. The company directors in association with their accountants and lawyers created subsidiaries in order to generated false earnings, avoid taxes, inflated assets and hide losses. Finally in 2001 the company lost the credibility in the market and the scandal was exposed affecting thousands of employees and investors. (Tonge, Greer, & Lawton, 2003)
Enron, a company which originated in Huston, Texas, was one of the largest American energy trading corporations in the nation. Although it was one of the most well known companies, it was also one that crashed and burned the fastest, shocking many people when it did. Not only did it end fast, the company caused quite a scandal which is still being discussed and reviewed in today’s world. Enron’s bankruptcy scandal was so widely known because of the many people who associated themselves with the company and worked with it. When it finally did end in 2001 the corporation was a wreck. This paper will analyze the business of Enron, the impact which Enron had on the economy, the causes of the rise and fall, the effects of de-regulation, and an analysis of the collapse of Enron. Also in this essay will be a look at the accounting practices of Enron, who Arthur Anderson was, and what his role was in Enron. The essay will finally take a look at just what happened to Arthur Anderson after the collapse of the company to which he hurt.
Enron failed largely due to the unethical practices of its executives (Johnson, 2003) Primary motivators is known to have been greed amongst managers and their subordinates, most of whom seemed to have been in a race to receive larger
The Enron case created a reevaluation of corporate governance and a revolution of accountability between corporation and shareholder. Many theorists believe that the Enron case showcases the
The story of Enron begins in 1985, with the merger of two pipeline companies, orchestrated by a man named Kenneth L. Lay (1). In its 15 years of existence, Enron expanded its operations to provide products and services in the areas of electricity, natural gas as well as communications (9). Through its diversification, Enron would become known as a corporate America darling (9) and Fortune Magazine’s most innovative company for 5 years in a row (10). They reported extraordinary profits in a short amount of time. For example, in 1998 Enron shares were valued at a little over $20, while in mid-2000, those same shares were valued at just over $90 (10), the all-time high during the company’s existence (9).