Why Enron Collapsed?

1143 WordsJul 28, 20125 Pages
What are the reasons why Enron collapsed? * Investments Enron dealt in energy. According to Infinite Energy, the first and main cause of Enron's collapse was failed investments. Enron invested money in fiber-optic networks, a power plant in India and water distribution in the United Kingdom, to name a few. While a company the size of Enron could afford occasional losses, the mounting, failed investments added up and created a plethora of debt. * Hidden Losses Infinite Energy states that the second and most shady reason for Enron's collapse was the hidden losses within the company. The company allegedly enriched itself and formed partnerships specifically designed to hide $500 million in company losses. Because these losses were…show more content…
But what were already considered accounting practices on the edge of acceptable standards were eventually revealed to be outright fraudulent. The disgrace drove so much business away from and created such liability for accounting firm Arthur Anderson that it was itself forced out of business. By this time, though, the true value of the company had been revealed and the stock price collapsed, leaving employees with worthless options and pension packages. Of course, executives that understood the real picture sold their shares in advance of the collapsed and waltzed away with billions. * Management Culture Of course, the Enron fiasco did not happen by accident. It was facilitated by a corporate culture that encouraged greed and fraud, as exemplified by the energy traders who extorted California energy consumers. Rather than focus on creating real value, management's only goal was in maintaining the appearance of value, and therefore a rising stock price. This was exacerbated by a fiercely competitive corporate culture that rewarded results at any cost. Some divisions of Enron replaced as much as 15 percent of its work force annually, leaving employees to scramble for any advantage they could find to justify their continued employment. While the internal integrity of the company remained thusly challenged, the façade was the exact opposite. The company leveraged political connections in both the Clinton and Bush administrations,
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