Why Did Enron Collapse? Essay

1266 words - 5 pages

Enron was one of the world's largest electricity, natural gas, and broadband trading companies, with revenues of over $100 billion until its crash in the fall of 2001. Enron's strategic intent was to become the blue-chip energy and communication company of the 21st century through its business efforts in four core areas: Enron Wholesale Services, Enron Broadband Services, Enron Energy Services, and Enron Transportation Services. Enron management claimed that each of these business units supported the company's vision of "offering a wide range of physical, transportation, financial and technical solutions to thousands of customers around the world." But Enron's aspirations of becoming the leader in the energy and communications came to a screeching halt because of a strategy that was flawed by unethical behavior mainly GREED. But how does a corporation that becomes so successful become so greedy? I am of the opinion that the main reason was due to the corporate strategy that was implemented that was more concerned with the continuing growth of stock prices instead of looking at the long run. In the following paragraphs it is shown what constitutes a good strategy and examples of what went wrong.We can start of by saying that a good corporate strategy is one that is shaped by management having an ethical view of external and internal considerations. External considerations include societal, political, regulatory, and community factors along with competitive conditions and overall industry attractiveness; a company's market opportunities and threats. External considerations on the other hand are of great importance in today's business world due to the global market that exists.Primary internal considerations are company strengths, weaknesses, and competitive capabilities; managers' personal ambitions, philosophies, and ethics; and the company's culture and shared values. Internal considerations have become a very important part of a company's strategy in the past few years. A corporation's strategy must be written so that a corporation is seen as a good corporate citizen.One example of how this can go wrong is when Enron was made a choice to use questionable bookkeeping methods in order to show a huge profit for people in higher levels of management with huge bonuses while at the same time hiding an enormous amount of debt. Tom Fowler of the Houston Chronicle Enron reported the following example about how an Enron employee profited from the misstating of finances; "The partnerships called LJM1 and LJM2, which were formed using Enron equity and outside capital as a way to hedge against the risks involved in some of the company's new lines of business, such as Internet broadband trading and water. They were also designed to help the company grow quickly without adding too much debt to its books or diluting the value of the company's stock. This was accomplished by former CFO Andy Fastow's performing dual roles as Enron CFO and managing director of the...

Find Another Essay On Why Did Enron Collapse?

Enron: Ethical Mess Essay

2136 words - 9 pages the company grew, the stock price grew equally. From 1996 to 2001, Enron was named “America’s Most Innovative Company” by Fortune (Folger, 2011). With the practice of creative accounting, Enron looked better on paper to stockholders than it really was because through their special purpose entities the company did not have to disclose its debt on its balance sheet. People invested in the company because of the large amounts of profits that the

Enron, a brief history and how the company imploded.

4976 words - 20 pages ranging from arbitrary to brutal. The company did not speak out about human rights violations and, when questioned about them, chose to dismiss them altogether."As well, Enron's bankruptcy leaves the U.S. Government run Overseas Private Investment Company (OPIC) exposed to more than $1 billion in risks related to projects sponsored by Enron, with the Dabhol collapse accounting for $340 million of this. OPIC is an agency which offers corporate

Enron's Audit

952 words - 4 pages on the Generally Accepted Accounting Principles. Disclosure of the three SPE partnerships is what brought about the collapse of Enron. By creating these entities, Enron was able to draw capital from bank, insurance companies, pension funds, and individuals. Since much of the debt was off balance sheet, Enron was able to protect its credit rating.It seems to me that Andersen had difficulties in preventing Enron from engaging in fraudulent

Dilemma in the Workplace - The Enron Corporation. Includes background on the company, key problems and issues, who was affected, and evaluations and solutions. 3,010 words. Greatly detailed.

2933 words - 12 pages The Enron Corporation- Dilemma in the WorkplaceThe Enron Corporation (Enron) was once one of the world's leading energy companies. In December 2001, Enron filed the largest corporate bankruptcy claim in United States history. The collapse led to investigations of both Enron and Arthur Andersen, an accounting firm employed by Enron. Investigators focused on charges that Enron deliberately concealed its financial problems, misled investors, and

Fundamentals of Business for Managers

1237 words - 5 pages What brought about Enron's collapse?The lack of corporate values brought about Enron’s collapse. Enron's failure can also be attributed to the arrogance and greed. The company's bankruptcy was brought on by dishonesty and fraud. But in fact Enron's bankruptcy was an event of greater cultural import than either the Left or the Right perceives. It represented the failure of corporate values.Enron traded energy, at first. It was good at

The ENRON scandal: The downfall of the ENRON corporation

1270 words - 5 pages money were sold to partnerships. Enron was so bold with their accounting practices that they would list the sales of these assets as earnings. However, accounting rules require that an SPE be legally isolated from the company that created it. Enron failed to do this. Not only did the SPEs rely upon Enron managers for leadership, but were completely dependent on Enron stock for capital. Over the years, Enron had created almost 4,000 SPEs. When

Management and Ethics

1439 words - 6 pages The Enron Corporation (Enron) was once one of the world's leading energy companies. In December 2001, Enron filed the largest corporate bankruptcy claim in United States history. The collapse led to investigations of both Enron and Arthur Andersen, an accounting firm employed by Enron. Investigators focused on charges that Enron deliberately concealed its financial problems, misled investors, and failed to pay income taxes.Enron has taken a

The Failure of the Enron Corporation

1369 words - 5 pages To explain the causes of collapse for Enron, you must first examine the company history till its downfall and what it actually did as a company.Enron was formed in July 1985 form the merger of two large natural gas line companies called Internorth and Houston Natural Gas in the US. The company began trading natural gas commodities in 1989 and electricity in 1994. The company made extensive use of the internet to broker sales and quickly became a

Enron Scandal

739 words - 3 pages internal contracts over the related-party transactions" ("Enron Scandal"). After reading about the scandal it seems as if Arthur Andersen was being pressured by Enron's executive management to ignore all their flawed accounting principles.Overall there were several business practices that caused Enron's stock prices to increase and most of it was due to a flawed and failed accounting system.2. Why did Enron go bankrupt?Enron went bankrupt because

why being ethical and who bothers?

3354 words - 13 pages -interest. In this case, they violated the principle to be loyal to the agency of their ENRON. Especially for accountants, keeping a financial statement disclosed with true profits and losses information is the basic responsibility that they should follow.In Enron's case, its corporate culture played an important role of its collapse. The senior executives believed Enron had to be the best at everything it did and the shareholders of the board, who were

Enron Stakeholders

1708 words - 7 pages Enron Stakeholder Assignment Enron was a dream come true for a lot of people, but it was also a nightmare waiting to happen for many more. I am going to examine the collapse of Enron from the management perspective. The three examples of Enron behaving badly that I am going to study are the incidents in Valhalla, the electricity trading in California and the conflict of interest between Andy Fastow and his special purpose entities (SPE

Similar Essays

Why Did The Mayan Civilization Collapse?

3926 words - 16 pages would make the peasants work extremely hard, make them do things such as tend the fields of the wealthy nobles of the civilization. they were made to work like slaves. to make things worse, the priests would manipulate the peasants with their psychological tricks. This is wrong because what the priests did was not right. They are using the peasants to their advantage, which was why the peasants revolted and caused the collapse of the civilization

Why Did Communism And The Soviet Union Collapse By 1991?

566 words - 2 pages The Cold War came to an end when the USSR had lost its will for empire led by Gorbachev. It could not sustain the resources needed to pursue an empire it no longer felt it needed, it couldn't compete with the West and it needed a domestic change.First of all, the invasion of Afghanistan forced the USSR to evaluate its situation. It was a battle over the Soviet influence in Afghanistan and third world countries. The Soviet leader Gorbachev with

Enron Failure Essay

1252 words - 5 pages started. It seems that Enron's purpose for the sale and repurchase of the assets was to permit Enron to get them off its books to avoid being required to report a loss on a decline in value of the asset.There is also the loophole of gross trading revenue. Energy companies are able to report revenue equal to the total dollar value of trades that they facilitate, rather than just reporting the commissions on those trades. That is why Enron was able to

Cases Enron Aftermath Essay

2306 words - 9 pages The Enron Bankruptcy Chapter 11 Reorganization Todd Haberly May 8, 2002 BUSA 405 Prof. Macdonald 2 On December 2, 2001, Enron Corp. filed the largest bankruptcy in U.S. history. The Enron bankruptcy is also quickly becoming the most infamous and highly publicized bankruptcy case in history. Mismanagement, poor business and accounting procedures, and plain greed all factored into the complicated collapse of Enron. The house of cards, so-to