...collapsed in 2001. Failure of this company did not only affect the employees and stakeholders, but also it had a negative impact on the United States economy. Public scrutiny of Enron’s failure, through legal battles, revealed how the toxic organization leadership and culture were two of the major reasons the world’s top energy company collapsed. In this paper, the subject to be examined is how Enron’s organizational structure, culture, and the major contributors contributed to its failure. Enron’s Failure “Originally a gas pipeline company, it metamorphosed into the world's largest trader in gas, electricity, water, and all sorts of post-modern commodities such as bandwidth” (Gutman, 2002, p. 1). It appeared that Enron was one of the most successful companies in the United States. Share prices were doing well in the stock market, and the share value consistently grew, making them very attractive. The company’s growth was perceived as genuine until the company suddenly collapsed, leading to a disclosure of a scandal that involved the top leadership of the company. The scandal that led to the failure of Enron did not happen overnight. The failure was rooted in the company’s unethical leadership (Weidlich & Calkins, 2006). Enron’s fast rise to the largest energy management firm mirrored its demise because of unethical practices by Jeff Skilling the Chief Executive Officer (CEO), and Andy Fashow, the Chief Financial Officer (CFO) (Gutman, 2002). Enron’s leadership were...
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...Enron and Apple – A Financial Tale of Failure and Success Enron and Apple – A Financial Tale of Failure and Success 2 Abstract This paper analyzes accounting concepts that contributed to Enron’s demise and inclusion on the list of Fortune’s top ten largest bankruptcy filings in US, and in contrast, looks at Apple’s inclusion on the list of Fortune’s top ten most admired companies and reason for its success. Enron and Apple – A Financial Tale of Failure and Success 3 The Fall of Enron Introduction As a Fortune 500 company, Enron Corporation made the “Fortune’s Top Ten” lists seven times: six times as “America’s Most Innovative Company” and one, and last time, as the “Top Ten largest bankruptcy in the US” (Fortune Magazine, 2001, 2009). Within 10 months, Enron’s stock declined from $83 to 26 cents. When the nation's largest energy, electricity and natural gas company filed for bankruptcy in December 2001, shareholders lost tens of billions of dollars, over four thousand employees lost their jobs, and thousands more lost their retirement savings (Ferrell, Fraedrich & Ferrell, 2011, pg 419). Enron’s History and Business Model Enron was formed in 1985 though the merger of two natural gas companies and initially earned its revenue by producing and distributing natural gas. Under the leadership of Ken Lay and later Jeffrey Skilling, the gas company evolved adding electricity, communications, and energy trading to its offerings and continued its development, construction...
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...Running Head: ENRON BUSINESS FAILURE Examining a Business Failure Paper Enron Rachel Y. Pointer University of Phoenix LDR/531 Ernest Price, Instructor January 17, 2010 Enron Business Failure One of the world’s most catastrophic business failures was Enron. Unveiled in October 2001, this scandal involves the renowned energy company Enron in conjunction with the accounting, auditing and consultancy schemes of Arthur Andersen. Enron disgraces ultimately lead the organization to a scandal that resulted in the biggest economic failure in United States history (TIME Enron, 2001). The Enron scandal also destroyed one of the foremost accounting agencies in the world, Arthur Andersen. Enron’s downfall was the result of their choice of accounting practices, in particular target entities and poor financial reporting. Enron’s accounting structure had so many loopholes that it was unproblematic for Andrew Fastow, the organization’s chief financial officer, to mask billions in debt from failed transactions and schemes. Fastow and other main executives purposely misinformed the organization’s board of directors and audit commission. The U.S. Securities and Exchange Commission (SEC) began an investigation into Enron after the organization’s stock price began to plummet and Dynegy offered to purchase Enron at a price much lower than normal market price. When the Dynegy deal did not happen, Enron filed for bankruptcy on December 2, 2001 under Chapter 11 of the...
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...Examining a Business Failure: ENRON LDR 531 Organizational Leadership December 5, 2011 . Examining a Business Failure Effective managers and leaders contribute to the organizational success of an organization. Companies lacking strong managerial leaders failing to enforce the ethical code of conduct of an organization are prone to organizational failure. Yukl (2006), states, “One viewpoint is that leadership occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves” (p. 4-5). The notorious Enron scandal created a historic impact to the organizational culture and processes of businesses in the United States. The following paragraphs will address organizational behavior theories, which could have predicted Enron’s failure. Furthermore, a comparison of management, leadership, and organizational structures is scrutinized to determine the influence each had on Enron’s failure. Who was ENRON? Enron was founded in 1985 when Kenneth Lay merged Houston Natural Gas and InterNorth creating Enron (CBCNews, 2006). In the early 1990s Kenneth Lay commenced the sale of electricity at reasonable prices. However, Congress deregulated sales of natural gas. As a result, Enron’s earnings increased and became the largest retailer of natural gas. To expand, Enron diversified and incorporated gas pipelines, pulp and paper, broadband services, water, and electricity plants. Furthermore, the deregulation allowed Enron executives...
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...ENRON’S FAILURE RESEARCH #1 Failure of Enron Corporation Enron Corporation, called America’s most innovative company for six consecutive years by Fortune Magazine, was the world’s leading energy company. Enron was formed in 1985 by a merger of Houston Natural Gas and InterNorth, involving the transmission and distribution of electricity and gas throughout the United States, but majority of its growth was due to the pioneering marketing and promotion of power and communication bandwidth commodities as well as its related risk management derivatives (Columbia Electronic Encyclopedia, 2009). Under new leadership Kenneth Lay and Jeffrey Skilling, Enron adopted an aggressive growth strategy. To ‘seal the deal’, they hired Andrew Fastow as CFO and it was he, that helped to create the complex financial structure for Enron (Reinstein & Weirich, 2002). One could say that Enron began to plummet as soon as the company shifted its focus from regulated natural gas domestically to international energy, water and broadband communications – as these were volatile and risky hedging transactions (Reinstein & Weirich, 2002). Engaging in these risky transactions, enabled Enron’s stock to rise but when these three new areas went sour, the stock plummeted as well. Enron’s management did not disclose these losses and liabilities on their financial records nor to the investors of the corporation (Reinstein & Weirich, 2002). Despite Enron being called the most innovative and having alleged...
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...shareholders, auditors, executives, the public and many other stakeholders are still dealing with the impact of the fallout that came from the misconduct of the debt ridden company. With the exception of a few industries, the stakeholders faced mainly negative benefits from Enron’s demise. Enron business model. Enron Corporation sketched out its roots to the Northern Natural Gas Company, in 1932 in Omaha, Nebraska. It was restructured in 1979 as the leading subsidiary of a holding company. Kenneth Lay founded Enron in 1985 through the merger of Houston Natural Gas and Internorth, two natural gas pipeline companies. The merged company owned 37,000 miles of intra- and interstate pipelines for transporting natural gas between producers and utilities. Enron the American energy company based out of Houston, Texas employing roughly 22,000 is one of the world’s largest electricity, natural gas, pulp and paper and communications companies with revenues roughly $101 billion in 2000. In Enron’s original natural gas business, the accounting had been fairly straightforward: in each time period, the company listed actual costs of supplying the gas and actual revenues received from selling it. However, Enron’s trading business adopted mark-to-market accounting, which meant that once a long-term contract was signed, the present value of the stream of future inflows under the contract was recognized as revenues and the present value of the expected...
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...contributed to the failure of Enron? Briefly explain two key factors. Enron collapsed in large part because of not responsible business. So Enron executives were charged with criminal acts. Those charges were fraud. If didn’t occur this acts, Enron would become one of large company in the world. They should keep their self-interest to themselves. They only think of the short-term benefit not thinking of the long-term effect which leads them to bankruptcy. Greed is first individual factor. It can blame for the failure of Enron. Every time and everyplace can increase greed. Greed has no time or limit. In order to get more profit, they did massive fraud and insider trading. They use many different way to cover up they acts. Like once their schemes were discovered by the auditors, their schemes were discovered by the auditors, Kenneth lay encourages them to “keep making us millions”. If auditors disagree, Enron’s would fire him. Enron’s executives put their own benefit above those of their employees. They only thinking of making more money with unethical act. The another factor is failure leadership. Abuse of power to make decision which is only benefit for themselves. While they make decision, didn’t consider economic and polity. They have many unethical behaviours like making a false financial statements, misleading statement and frauds. In the result, the company is broken. 2. What were the organisational factors that contributed to the failure of Enron?...
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...1.What were the individual factors that contributed to the failure of Enron? Briefly explain two key factors. The first individual factor is their greed. They became so greedy wanting more and more while running the company. The executives did massive fraud and insider trading in order to get more profit because of their self-interest. if they can keep their self-interest to themselves, enron can become one of biggest company in this world, but they did all of criminal acts only thinking of the short-term benefit not thinking of the long-term effect which leads them to bankruptcy. The second one is their failure of leadership. There were numerous Enron’s executives engaged in so many false acts like false statement of the report, making misleading statement and etc. Also, enron’s top management allowed Fastow (former chief financial officer) to operating a partnership with related party to do business with them which is really opposite from The Enron Code of Ethics (Knockitpocket 2013). In fact, the board of director should have prevented all of the wrong doing from happening. 2. What were the organizational factors that contributed to the failure of Enron? Briefly explain two key factors. The first organizational factor that leaded Enron’s bankruptcy which is also one of the most important factor; manipulative accounting system. Arthur Andersen, auditor and also consultant of enron was faking the financial report until the bankruptcy happened in order not to lost...
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...company based in Houston, Texas, as in October 2001, revealed the largest accounting failure and internal financial corruption in U.S. history. Perhaps, the lack of transparency, and dishonest executives cause the company’s failure. The lack of specific organizational-behavior theories reviewed in this paper, help identify the reasons for Enron’s failure, and how the establishment and adherence to such theories could avoid such problems. Enron’s History In 1985, Kenneth Lay created Enron by merging energy companies InterNorth and Houston Natural Gas, which became highly profitable through further diversifying and expanding its assets such as electricity plants, paper and pulp plants, gas pipelines, and other services. By 1992, Enron was the leader in natural gas sales n North America. From 1990 to 1998, the company’s stock had increased 311 percent, and its market capitalization was $60 billion by the end of 2000, which also received recognition as the most innovative company in America, by Fortune’s Most Admired Companies Survey (Roston, 2002). Enron’s Scandal President and Founder Kenneth Lay, with the aid of CEO Jeffrey Skilling, created Enron’s “special” board of executives, who were able to hide billions of dollars in deficit with a special team of executives, through accounting, and financial reporting loopholes, and special interest companies. This eventually was discovered when Enron’s stocks were less than $1 per share towards the end of 2001, coming down from a $90...
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...consultants the structure of Special Purpose Entities (SPE). The SPE’s were used to hide Enron’s true financial situation. False profits were generated, losses were hid, and financing was kept off of Enron’s consolidated financial statements. The auditors did not enforce Enron to institute internal controls and failed to abide by Generally Accepted Accounting Principles (GAAP). AA did not warn Enron’s audit committee that there was a significant conflict of interest involving Andrew Fastow, Enron’s CFO and his helpers. Obstruction of justice was committed by shredding Enron’s audit papers leading to imprisonment charges. Transactions conducted between Enron’s, and the SPEs were not in the best interest of the shareholders, for example profits and cash flow were swayed and clearly inflated. This misled investors. The above are just to name a few contributions to Enron’s downfall. 3. What was the prime motivation behind the decisions of Arthur Andersen’s audit partners on the Enron, WorldCom, Waste Management, and Sunbeam audits: the public interest or something else? Cite examples that reveal this motivation The prime motivation behind the decisions of Arthur Andersen’s audit was profit and greed and was not in the best interest of the public. The leaders of AA did not recognize how infuriated the public, the politicians, and the SEC became by the series of AA audit failures. “If they had recognized the precarious position they were in, the AA leadership might...
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...Examining Enron's Failure Organizational-behavior theories help to understand the effects of leadership, objectives, individual characteristics and action, and employee behavior and attitudes within an organization. It also explains the effects of internal environments, such as culture, the structure of the organization, resource and task allocation, and external environments such as competition or government regulation. These factors contribute to the performance, success or failure, and survival or fall of an organization. Organizational-behavior theories help to explain the collapse of Enron and how leadership, management, and organizational structure contributed to its failure. Organizational Structure With a market capitalization of nearly $74 billion, Enron was one of the world’s leading energy companies by the late 1990s. However, it had gained this status through the perpetration of illegal activities at the very highest levels of the organization. Enron’s fall was because of the organizational-level corruption that grew from its structure and trickled down to the collective behavior of its employees. Enron’s top-down, hierarchical structure by unit grouping meant that the top management team either directly or indirectly through their subordinates influenced the actions of the organization. For example, the structure of the accounting department allowed it to disregard legal requirements through “structural secrecy” that Enron’s executives could exploit (Beenen &...
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...Comm101 Tutorial 1) What were the individual factors that contributed to the failure of Enron? Briefly explain two key factors. Enron collapsed in large part because of the unethical practices of its executives. Egoism (Self interest) was one of the major factors contributed to the failure of Enron. Enron’s executives put their own interests above those of their employees, company and the public, and failed to exercise proper oversight or shoulder responsibility for ethical failings. They allowed themselves to be motivated much more by what would benefit themselves than what would truly benefit the company. Money, greed, arrogance and hubris led company executives to lose focus on working for the good of the company and to act unethically (Gini,2004). Abuse of power to make decisions which were beneficial economically and politically to themselves and the company, was one of the key factors that led to Enron’s failure. Company leaders used insider information and traded millions of dollars in company stock, borrowed from subsidiaries with no intent to repay the loans (Wilke, 2002) , and avoiding federal taxes even though some of its subsidiaries, like Portland General Electric, collected tax payment from customers (Manning & Hll, 2002). Such behaviors of moral failure at the top and irresponsible behaviors led to the collapse of Enron. The unethical behavior of Enron’s leaders appears to be the product of both individual and situational factors. Greed was the primary...
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...following Case Scenario and then attempt this task Enron: How the Failure of Leadership, Culture, and Unethical Behavior Brought a Giant to its Knees Background A company with humble beginnings, Enron began as a merger of two Houston pipeline companies in 1985. Although Enron faced a number of financially difficult years, the deregulation of the electrical power markets took effect in 1988, and the company redefined its business from "energy delivery" to "energy broker." Enron quickly changed from a surviving company to a thriving one. Deregulation allowed Enron to become a matchmaker in the power industry, bringing buyers and sellers together. Enron profited from the exchanges, generating revenue from the difference between the buying and selling prices. Deregulation allowed Enron to be creative—for the first time, a company that had been required to operate within the lines could innovate and test limits. Over time, Enron's contracts became increasingly diverse and significantly more complex. Customers could insure themselves against all sorts of eventualities—such as a rise or fall in interest rates, a change in the weather, or a customer's inability to pay. By the end, the volume of such financial contracts far outstripped the volume of contracts to deliver actual commodities, and Enron was employing a small army of Ph.D.s in mathematics, physics, and economics to help manage its risk. As Enron's products and services evolved, so did the company's culture. In this...
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...Business Failure Enron xxxxxxxxxx University of Phoenix Online February xx, xxxx xxxxxxxxxxxx Examining a Business Failure: Enron This paper will discuss the contributions of leadership, management, and organizational structures that led to the demise of Enron. The structures will also be compared and contrasted to help better understand why the company failed. Enron Corporation was founded in Omaha Nebraska 1985 and was defunct on December 2, 2001. In the year 2000 Enron had published revenues of $101 billion and employed approximately 22,000 employees. The Company’s founder and CEO was Kenneth Lay Other notable people who lead Enron where Jeffery Skilling, Andres Fastow, Rebecca Mark-Jusbasche. Fortune magazine nominated Enron as “Americas Most Innovative Company” for six consecutive years. At the end of 2001 it was discovered that Enron had been creatively distributing its debt through fraudulent planned Accounting making the company seem very profitable in previous years ("Enron", 2012). Leadership, Management, and Organizational Structures (contributed to the failure) Leadership has many different definitions; one definition is “the behavior of an individual directing the activities of a group toward a shared goal. (Hemphill & Coons, 1957, pg 7). This definition is closely is related and applies to Enron’s leadership, Management and structure. Enron’s leadership...
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...Moncarz* Raúl Moncarz* Alejandra Cabello** Benjamin Moncarz*** Abstract Recent collapses of high profile business failures like Enron, Worldcom, Parmlat, and Tyco has been a subject of great debate among regulators, investors, government and academics in the recent past. Enron’s case was the greatest failure in the history of American capitalism and had a major impact on financial markets by causing significant losses to investors. Enron was a company ranked by Fortune as the most innovative company in the United States; it exemplified the transition from the production to the knowledge economy. Many lessons can we learn from its collapse. In this paper we present an analysis of the factors that contributed to Enron’s rise and failure, underlying the role that energy deregulation and manipulation of financial statements played on Enron’s demise. We summarize some lessons that can be learned in order to prevent another Enron and restore confidence in the financial markets, as well as in the accounting and auditing professions. Keywords: Enron, Corporate Ethics, Corporate Bankruptcy, Creative Accounting. Introduction T he rise and fall of high profile businesses like Enron, WorldCom, Parmlat and Tyco has been a subject of great debate and research among regulators, investors, government and academics in the recent years. Enron, for one, was the greatest failure *Professor-investigator Florida International University. E-mail:Elisa Moncarz: moncarze@fiu.edu Raúl...
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