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The Fall of Enron Case

Autor:   •  March 23, 2016  •  Case Study  •  941 Words (4 Pages)  •  1,290 Views

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Stephanie Ramadar

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.
  • From a pipeline organization in the 1980's, Enron developed into one of the largest energy traders of the world, utilizing the Internet to purchase and offer common gas and electric power supplies for utilities and mechanical force clients and also assistance with hedging against modifications in power costs. Prior to 2000, Enron Company, built in the mid-80s, brought on the profound respect overall due to its quick ascent of income in the local and international stock market in a brief timeframe. Enron's operating income in 2000 was noted $100.7 billion and its after-tax net income was accounted for in $979 million (Palepu and Healy, 2013). The company’s business model depended on energy exchanging, focused in the deregulated energy marketplace, and in its noteworthy interests in a few substantial scale products and other expansive distinctive administrations. Enron was considered America’s most creative business for six sequential years, since the mid-90s. Enron conveys a transformational creativity throughout a time of quick business model changes in the western side of the world. In any distinctive business sector it conceded, the organization gave creation and administration ideas, as well as a new plan of action pathways. In reference to administrative quality and ability Enron was continuously ranked in excellence in employees, services and goods. Enron enlisted top business experts, the brightest business college students, engineers and researchers to help the firm in its trading strategies (Palepu and Healy, 2013).  Enron's rationality enveloped and attempted to handle the exchanging risks in putting into practice new considerations.
  1. Why did the company fail? Comment on each of the following areas:
  1. Accounting issues? B. Firm governance? C. Incentive system?
  1. Conflict of interest between different parties? E. And…?
  • Regarding the accounting department, Enron’s disappointment was because of a deliberate alteration of its financials to the assumed groups, the stockholders and the general population. The business showed that they had made numerous organizations with different firms and used them to cover its debts. There was no compelling reason to do false reports, unless there was a fundamental awful goal of harming the picture and notoriety of the association. Uncovering disreputable statements of an organization's budgetary state is always a bad decision.
  • With respect to firm governance, the basic inception of Enron's defeat was its business corporate conduct (governance behavior). It is understood that each industry has an objective, which runs in arrangement with its vision and mission. These ought to be their driving power in performing resolutions that are reasonable and there for the long. Moreover, all organizations likewise have their commitments to their board individuals as well as need to transmit the right support of their staff which incorporates their speculators, workers, shareholders, and to the general open when all is said in done. Whatever establishment that relies profoundly in making profits through deceptive exchanges and speculations without honesty and without giving careful consideration to their social obligations are destined for failure.
  • With reference to Enron’s incentive system, which runs inseparable with the association's moral conduct, Enron's collapse was from being a determined and prosperous company even though their strengths were deriving to a loss. This drove them to sort to different dishonest methodologies, such as employing new supervisors with high compensations and alluring rewards and bonuses as motivators to remain ahead of competitors in trading tactics (Palepu and Healy, 2013).
  • Enron had irreconcilable situation conflicts that additionally brought on its disappointment, when the association delegated Arthur Andersen as an internal and external auditing firm and consulting entity to the organization. It additionally had assumed ramifications of US government as visible by their close connection of Enron's Chairman to the White House. This carelessness to protect their eminence, drove them to another reason for defeat. In the moral climate, Enron put an investigation on the trustworthiness, integrity and dependability of the association.
  • Enron's collapse left the possibilities of 21,000 workers in uncertainty and wiped out what was left of the property of stock financial specialists, including some enormous common assets, as shares that sold for $90 in August 2000 was left with 61 cents in 2001. It troubled the Treasury and stained the remaining New York banks that both exhorted on the arrangement and emptied their own money into the organization. It also left Enron's CEO, Kenneth L. Lay, an associate and supporter of President George W. Bush reputation in shambles.
  1. What was the major change in regulation after the fall of Enron, and what were the legal consequences for the key players involved?
  • The significant change in regulation after the fall of Enron was the issuing of the Sarbanes-Oxley Act, by the U.S. Congress in 2002. It ordered brutal changes to enhance financial disclosures from businesses and to refrain from accounting deceptions. It also brought awareness of the code of business ethics.
  • The lawful results for the key players included in the Enron's outrage were that the CEOs who controlled Enron were set up liable of fraud and conspiracy (5-10 years in jail). Mr. Skilling was sentenced on 18 counts of fraud and conspiracy and also one count of insider trading (maximum, ten years in jail).  Mr. Lay was discovered liable on six counts of fraud and conspiracy and also four counts of bank fraud. Mr. Andrew Fastow, Enron's previous CFO, examples of betrayal to the firm made him a representation of business defilement. He was sentenced to six years in prison.

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