...Enron’s Downfall In 1985 Enron was created from a merger between Houston Natural Gas and InterNorth, both companies dealing of natural gas pipelines. During the process of the merger, Enron incurred massive debt – the only hope of survival was initiating a new business plan and strategy to generate profits. Over the next decade, Enron’s reputation grew within the country. CEO Kenneth Lay hired Jeffrey Skilling to lead the company’s efforts, again to success. The business began to flourish while employees were expected to perform at top rankings and produce earnings after Skilling’s roll out of RICE went into effect. In 1999, Richard Causey, a previous Arthur Andersen accountant who left his former position to join Enron as assistant controller, is named Chief Accounting Officer and assists Andrew Fastow, one of Skilling’s first hires, in creating two partnerships maintained to buy poorly performing Enron assets and risky investments to hide company debt. Transferring these assets meant the losses would remain off of Enron’s financial statements. “Reducing hard assets while earning increasing paper profits served to increase Enron’s return on assets and reduce its debt-to-total-assets ratio, making the company more attractive to credit rating agencies and investors.” In 2000, Enron’s stock hit an all-time high of $90.56 and they were feature in Fortune magazine for Most Admired and Innovated Companies. On August 22, 2001, Sherron Watkins, a finance executive shares...
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...Examining a Business Failure: The Downfall of Enron Team D: LDR/531 2012 Eric Heard In December of 2001, Enron was forced to file for bankruptcy after an investigation of their finances. This investigation uncovered a history of conspiracy, money laundering, and inside trading that led to one of the largest fraud scandals in history (Cernusca, 2011). As a result, businesses should examine exactly where this powerhouse faltered. The areas to be studied specifically are organizational structure, leadership, and management (Yuki, 2010). Once this is complete, business should learn from Enron's mistakes and be careful not repeat history. Organizational Structure's Part of the Enron Failure When looking at an organization, the structure which is defined as “how job tasks are formally divided, grouped, and coordinated” is important to fully understand the organization and how it can be an asset or in the case of Enron a failure (Robbins & Judge, 2011, p. 493). Since the fall of Enron people have studied the company to see what caused the failure. Due to Enron’s failure we have new legislation to help prevent some of the issues from happening again in other companies from the Sarbanes Oxley Act (SOX). One of the reasons for the act was the way Enron’s upper management ran the company. One key element to organizational structure is Centralization and Decentralization decision-making. This key aspect could be argued as the main...
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...think about the word morals or ethics, some consider rules for know the distinction in the middle of good and bad. The Enron outrage would be an immaculate fit for Business Research Ethics. Enron hosted untrustworthy conduct issues and harmed gatherings that experienced their slip-ups. From numerous points of view the Enron outrage opened up entirely of a couple of entryways for future issues. The organization was at one time a huge organization evaluated at about $29 billion at the season of the embarrassment. “In the mid 2000's, Enron, was a characteristic gas pipeline organization transformed into an online wonder”(Lashinsky, 2001). But in 2001 they descended hard and their whole purchasers and staff were in stun. Enron was theoretical; an organization that would help their shoppers gathers more cash. “There was some dishonest conduct included how did, for instance; the organization was running a Ponzi plan intended to improve the top administrators and dupe stockholders” ("Deciphering Enron," 2002). “That, in any event, was the impression left by a singing examination of the organization's operations arranged by an uncommon panel of Enron's governing body”("Interpreting Enron," 2002). “There was a report that was made in February 2002 that expresses that the organization exchanges ''filled no obvious business need for Enron" ("Decoding Enron," 2002). With Enron going down there were a significant number of harmed gatherings that were additionally found napping from this embarrassment...
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...ASSIGNMENT: LOCAL LAWSUIT Business Law April 23, 2012 LOCAL LAWSUIT Enron was a corporation founded in 1985, when a merger combined Houston Natural Gas and InterNorth (Thomas, 2002). Throughout the first years of Enron’s existence, they had many struggles. According to Salter (2005), the first five years had many “near death” experiences. Eventually Enron was able to prevail over their many “near death” experiences. In 1989, “Enron locked in its first fixed price contract to supply natural gas, to Louisiana aluminum producer” (Salter, 2005, p.2). They continued to promote and gain success by recruiting employees from MBA schools. Only the biggest and best were hired to maximize the success of Enron. Enron expanded to trading electricity in 1994. Since the breakthrough of trading electricity, Enron continued to grow a continued to become an incredibly successful corporation. However, due to unfortunate decisions both within and outside of the company Enron declared bankruptcy on December 2, 2001 (Salter, 2005). Workforce Enron was a company made up of the elite group of workers. Enron focused on hiring the “best and brightest traders” (Thomas, 2002, p.42) to maintain their status of being the top energy trading company. MBA schools were the sole focus of recruiting for Enron. However, there was a screening process that each recruit was required to go through. Enron screened for a sense of urgency, intelligence, a strong work ethic, and problem-solving ability...
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...about certain issues regarding the way they practice business. Another example of unethical practices would be insider trading, security fraud, and manipulation of the financial market. In some cases, unethical practice occurs because of greed, a sense of disconnection, and a sheer sense of ignorance. In this analysis, we will discover why, how and what business has ventured in this path of dishonesty. A prime example of this would be the Enron Corporation, which existed through the means of accounting and security fraud. Some brief information on the Enron Corporation is that it was “A U.S. energy-trading and Utilities Company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made Enron become the seventh largest corporation in the United States. Once the fraud came to light, the company quickly unraveled and filed for Chapter 11 bankruptcy on Dec. 2, 2001.” (“Investopedia: Enron, 2013.) As Enron began to unravel, there were numerous reports of more accounting fraud involving Enron’s accounting firm Arthur Andersen and how they failed to disclose Enron’s debts and losses that it grieved with were not reported on Enron’s financial statement. “The reason to Enron’s failure is because of the moral behavior of accountants and managers. The accountants were both self-satisfied and incompetent enough to certify Enron’s financial...
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...then equals more success for the organization. Training new employees and team environments is best implemented when the organization develops a training program that will give the employees useful information they will need to get a full understanding of the organizational structure, policies, and goals of the company. This paper will review some practices that prevented Enron from collaborating and communicating effectively, provide training ideas that could have helped the management staff be successful and lastly, address how this training plan could have improved Enron’s management team and other employees. When developing a successful training plan, one must identify the issues that were present within Enron’s leadership and management team. Training should start from the top, that way, the people with leadership status, including the management team, will be well prepared to successfully train their staff to do a job well done. Organizational Behavior 12th ed stated that norms are the acceptable standards of behavior within a group that are shared by the groups members (2007). When it comes to Enron, the norms of the leadership and management team displayed unethical behavior. It is imperative that leadership and management staff know that they are a team working towards the...
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...Running head: Enron Annual Analysis Analysis of Enron Principles of Management Abstract Enron Creditors Recovery Corporation was an American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed around 21,000 people (McLean & Elkind, 2003) and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of $111 billion in 2000. Fortune named Enron "America's Most Innovative Company" for six consecutive years(Fortune, 2000, pg.45-50). It achieved infamy at the end of 2001, when it was revealed that its reported financial condition was sustained mostly by institutionalized, systematic, and creatively planned accounting fraud. Enron has since become a popular symbol of willful corporate fraud and corruption. The following is the 2000 annual report analysis that talks about the ethics, corporate responsibilty, organizational policies and applicable theories. ethics According to the 2000 annual report, the company values are as follows. “We have an obligation to communicate, take the time to talk to one another and listen. We believe that information is meant to move and that information moves people”(Enron, 2000, pg.55). The company had a good ethical philosophy of communication. Still if employees would communicated from the beginning some corrections would have been made and possibly the company would stills stand today. “We treat others as would like to be treated ourselves...
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...defining ‘ethics’ focuses on the disciplines that study standards of conduct, such as philosophy, theology, law, psychology, or sociology. (Resnik, 2011) The Enron scandal would be a perfect fit for Business Research Ethics. Enron had unethical behavior problems and injured parties that suffered from their mistakes. In many ways the Enron scandal opened up quite of a few doors for future issues. The company was once a really big company estimated at about $29 billion at the time of the scandal. In the early 2000’s, Enron, was a natural gas pipeline company turned into an online marvel. (Lashinsky, 2001) But in 2001 they came down hard and their entire consumers and staff were in shock. Enron was hypothetical; a company that would help their consumers collects more money. There was some unethical behavior involved in what Enron did, for example; the company was running a Ponzi scheme designed to enrich the top executives and defraud stockholders. ("Decoding Enron," 2002) That, at least, was the impression left by a scalding examination of the company's operations prepared by a special committee of Enron's board of directors. ("Decoding Enron," 2002) There was a report that was made in February 2002 that states that the partnership transactions ''served no apparent business purpose for Enron ("Decoding Enron," 2002) With Enron going down there were quite a few of injured parties that were also caught off guard from this scandal. The collapse of a very strong company injured several...
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...Ethics Paper Regina Zamora-Chilin MGT/498 November 20, 2011 Professor: Dr. Earl Levith Ethics Ethics as will be described in this paper pertains to the social responsibility that any business must possess at the time of developing a strategic plan while considering stakeholder needs and agendas. This paper will discuss the Real Estate sector of the United States’ economy as well as a well known company called Enron, and its questionable overstep into unethical practices on various levels that brought forth government interference. For Enron, it is through the Sarbanes-Oxley Act (SOX) that all businesses are measured to prevent and avoid unethical situations from taking place. The Role of Ethics The role of ethics and social responsibility has increased tremendously over the past decade for the majority of corporations. In the past, corporations have probably not paid enough attention to doing what is socially responsible because there were no strict government guidelines to follow. Even though the United States is a rule-based country, corporations have in past years managed to mishandle corporate standards. Ethics and social responsibility forces corporate employees at senior levels to stop and examine their activities in an effort to reduce violating the law. If executives are able to identify unethical practices then they will do ‘the right to set preventive measures or disciplinary actions to employees who are not in compliance with the corporation’s standards...
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...Enron: Case Study 1 The purpose of this paper is to formally address the Enron scandal that came out in late 2001. It will discuss a brief introduction to how Enron came to be such a large and powerful corporation and the decisions made which resulted in its ultimate downfall. While discussing these time periods, accounting issues such as the agency and horizon problems as well as agency costs and the manner in which they affected Enron will be dissected additionally. Lastly, an analysis of these issues and recommendations given in favor of preventing types of corruption like this will be listed out in detail. The company all starts with Kenneth Lay. Lay received a PhD in economics and was interested well ahead of the industry, in energy deregulation. He was promoted by George Bush Sr. to be named as Deregulations Ambassador at Large (Gibney, 2005). In 1990, Jeff Skilling joined Enron and turned the pipeline company essentially into an “energy bank”. This helped immensely for Enron in terms of establishing themselves as a very powerful corporation. “Enron was quickly transformed from a sleepy cash cow to a darling of Wall Street with a bounty of promising opportunities.” (Stewart, 2006). Enron’s misuse of mark to market accounting became step one of a few crucial mistakes that the company had made. “With a wave of accountants’ magic wands, Enron was authorized to record in a single year all the profit that would normally be booked over 10 to 20-year...
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.... Burton Final Paper: The Enron Scandal MSA 602 Dr. Pendarvis 12-4-2011 Abstract Enron's collapse is generally viewed as a morality tale - the natural result of managerial greed, a clueless board, and feckless gatekeepers. But none of these aspects of the story clearly distinguishes Enron from other major firms during the bubble era of the late 90s. This material identifies certain economic facts from the many moving parts that was Enron, and organizes them along two main threads. The first describes Enron's major businesses, and the incentives and constraints under which the managers of those businesses operated. The second thread describes the basic financial engineering tools developed by Enron's finance department. These threads are then woven into the timeline of Enron's ultimate collapse. What emerges is a tale of how bad bets that resulted in good outcomes came to be viewed by top management and the board as bets worth repeating on an ever-larger scale. Early success in highly risky ventures were ramped up and duplicated, under perverse incentives, into a financial disaster. The firm then doubled down on that disaster with non-economic hedges developed by the finance group. The CFO, in a wholesale breach of his fiduciary responsibilities, including corruption of various gatekeepers, managed to cloak the poor quality of his hedges and his motivation in creating them. This duplicity prevented...
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...A new strategy Enron was the biggest seller of natural gas in North America in 1992, their EBIT was 122 million dollar. Enron used differentiation strategy which aimed to develop and operated with different assets such as pipelines, services, paper plants, water plants and electricity plants. Enron did not just make profit on its assets but also traded with contracts of the assets and service in order to reach higher profit. This is how Enron became a favourite among investors in the ‘90s and its stock price increased 311%. The growth did not stop until the year of 2000. Enron’s market value was above 60 billion dollars and its stock price was 83,13 dollars the 31 December of 2000. The Commodity Futures Modernization Act of 2000 helped them with their derivatives businesses. “One example was during the California electricity crisis (2000-2001) where they manipulated the California energy market and sent electricity prices surging by at least a factor of eight. During that time, the price of natural gas was trading as much as $60 per thousand cubic feet in California (which was previously selling for about $3 per thousand cubic feet). This kind of manipulation increased Enron's stock price and revenues. But this not so clever manipulation of Enron made itself a political target and accelerated the ruins of their finances.” Enron’s downfall Mark-to-market Accounting The use of mark-to-market accounting later struck back. The Enron’s aggressive accounting had corrupted...
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...Arthur Andersen: Questionable Accounting Practices Steven Young Strayer University Business Ethics: Ethical Decision Making and Cases Dr. Mary Tranquillo November 13, 2012 Arthur Andersen: Questionable Accounting Practices p1 Arthur Andersen, one of the largest accounting firms in the United States, “a name that was synonymous with trust, integrity, and ethics” (Ferrell, Fraedrich, & Ferrell, 2011, p. 348), through a loss of its founder Arthur Andersen, and change in its corporate culture resulting in many unethical business transactions that affected multitudes of primary stakeholders had to close its doors in 2002 after 90 years of business. Review the mandated requirements for legal compliance (from chapter 4) and determine which requirements apply to the Arthur Andersen case. Explain your rationale After re-reading Chapter 4 there are five areas that separate the mandated requirements for legal compliance, and I feel the that two apply to the Arthur Andersen case; the protection of consumers, and incentives to encourage organizational compliance programs. In the laws that protect consumers they require businesses to provide accurate information protecting them from financial scams, unfair, fraudulent, or deceptive practices. There are “Gatekeepers” that are in charge of that such as lawyers, financial rating agencies, and financial reporting services that help enforce high ethical standards. This...
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...Business Research Ethics Enron named Most Innovated in America and listed on Fortune’s 100 Best Companies fell from grace. Its success led it to shift its “vision form being the World’s Leading Energy Company to becoming the World’s Leading Company” (Verschoor). Businesses have a social responsibility both legally and ethically. There is nothing illegal about making money, but the manner in which you do so is. Ethics are norms or standards of behavior that guide moral choices about our behavior and our relationships with others. The goal of ethics in research is to ensure that no one is harmed or suffers adverse consequences from research activities (Cooper, Schindler). Enron’s ethical behavior started with its accounting department and the desire for greed. Without a governing body to ensure ethical responsibilities Enron continued to borrow money from itself eventually went bankrupt. In the wake of its missteps were retirements, stock, and countless employees. Enron’s lack of social responsibility, ethical failures, and poor management environment continued a cycle of irresponsibility. The ethical guidelines established by Enron were window dressing, to say the least. The mentality was utilitarian and the unethical cultural dominated poor decisions. “On the surface Enron kept projecting its image of being stalwart and responsible corporate citizen” (Verschoor). Enron’s management decided to utilize outsources bookkeeping to buy reports identifying Enron in good standards. For...
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... Enron was a large energy company and was among the top ten largest companies in America before its downfall into bankruptcy. The failure of Author Andersen and Enron is still a puzzling, outside America. Auditing and accounting principles in the United States of America are considered strong and sophisticated. Transparency and disclosure are really emphasized in American companies, and because of this the downfall of Andersen and Enron still raises questions. This has since become a case of reference in review of issues concerning financial reporting and auditing. It has also been used to explain about regulations on auditing and accounting inside and outside America. This case has brought about huge implications on corporate governance to other countries. Enron Corporation declared its bankruptcy in the year 2001. Afterwards, Anderson’s downfall occurred in 2002. It has been a big question, outside America, on what brought about this failure. The General Accepted Accounts Principles, in the US, are very well developed. These principles require clear disclosures of financial statements that are audited. They also require an established federal agency and a commission to monitor financial reporting. Cases have been written, from the failures of Enron and Andersen, for the exploration of accounting, auditing and financial reporting issues in the US. The head of auditing of Enron Corporation was fired during the company’s downfall for destroying important...
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