The Rise And Fall Of Enron

1900 Words8 Pages
The Rise and Fall of Enron
One of the most basic tenets of all companies, whether small or large, is to create a principled corporate culture. Those ethical principles must start with the executives of the organization and trickle down to the individual employees. Leaders affect the employees’ decision-making process, yet they tend to adopt the same rationale as their leaders when reaching a decision. The leadership of a company needs to find a balance between risk and creating opportunity. While generating revenue and growth are paramount, at most, organizations, executives set the tone regarding what actions and behaviors are acceptable to achieve these objectives. This paper will explore what happened to Enron when its leadership
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Jeffrey Skilling was hired by Lay in 1990 after working in a consulting capacity for three years. Skilling served in leadership roles within various Enron subsidiaries before becoming president and chief operating officer at Enron in 1997. He served as Chief Executive Officer of Enron for nine months in 2001 before resigning from the company for personal reasons. Skilling hired Andrew Fastow in 1990 because he was familiar with energy marketplace deregulation. Fastow worked in numerous capacities at Enron before ultimately being named Chief Financial Officer in 1998 and served in that position until the Securities and Exchange Commission commenced an investigation into irregularities in the company’s behavior.
Under the leadership of Skilling and the prowess of Fastow, in the 1990s, Enron altered its accounting method and starting using mark-to-market accounting. Mark-to-market accounting permitted Enron to add anticipated profits from a new project to their balance sheet without the project generating revenue. If the real profit proved to be lower than expected, Enron would transfer the loss to a special-purpose entity. The special-purpose entities created a way for the losses to go unreported. Under Fastow’s direction, Enron devised a way to write off losses without affecting the core business and stock value. Due to these practices, Enron’s balance sheet overstated earnings and understated their liabilities.
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