Example Of Enron Case Study

Published: 2021-07-19 14:45:07
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Category: Business, Market, Marketing, Company, Commerce, Investment, Ethics, Enron

Type of paper: Essay

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Seven years when the very fact, the story of the meteoric rise and future fall of the Enron Corporation continues to capture the imagination of the final public. What very happened with Enron? Outside of these related to the company world, either through business or education, comparatively few folks appear to possess an entire sense of the myriad folks, places, Associate in nursing events creating up the sixteen years of Enron’s existence as a yank energy company.
Some argue Enron’s best bankruptcy and ultimate death was the results of an absence of moral company behavior attributed, additional usually, to capitalism’s inability to examine the blooming growth of company greed. Others believe Enron’s collapse may be derived back to questionable accounting practices like mark-to-market accounting and therefore the utilization of Special Purpose Entities (SPE’s) to cover monetary debt. In different instances, individuals’ purpose toward Enron’s management of risk and overextension of capital resources, in addition to the stark philosophical variations in management that was between company leaders, because the primary reasons why the corporate went bankrupt. Yet, despite these numerous analyses of why things went wide of the mark, the tale of Enron’s upsurge and collapse perpetuates to mystify the final public yet as generate perpetuated interest in what really happened.
In this study, am going to talk about the background of the Enron’s scandal-its rise and fall- in the case introduction. I will also talk about foundation or source of ethical conflict (what caused the ethical conflict and how) and ethical decision in making frameworks. Moreover, I will establish impact of the business environment and analysis of core problems that were experienced.
Enron Corporation was created in 1985 when a merger with Internorth incorporated was orchestrated by Kenneth Lay- then CEO of Huston Natural Gas Company (HNG) (Free et al, 2007). Half a year later, Lay took over as the CEO of the new company after the resignation of Samuel Segner (the CEO Internorth Inc.). It didn’t take long before the merger (HNG/Internorth) was named Enteron- a name that in 1986 was renamed Enteron. The company was American’s second largest gas pipeline networks: it had assets worth $12.1 billion and 15000 workers and disappointingly enough, counted losses in the first year worth $14 million- contributing to its huge debt.
In the early years, Enron tried to operate as a standard gas firm located in a very competitive, however regulated energy economy (Free et al, 2007). Attributable to its enormous debt and initial losses on oil futures, however, the corporate had to drive back a takeover and its stock did very little to impress to the sellers on Wall Street. As luck would have it for Enron, things began to vary in Yankee governmental policy with relevance the approach the gas business operated. At the centre of Enron’s historical appreciates to power, lies the conception of policy-driven, market deregulating.
In the 1980’s, the gas market was deregulated through a sequence of federal policies, most particularly Federal Energy regulative Commission (FERC) Order No. 436, the gas Wellhead liberalized Act of 1989 (NBGWDA), and FERC Order No. 636 of 1992. Every of those policies were made to eliminate the regulative constraints by the central on the gas market, largely, to avoid a repeat of the powerful economic problems.
Enron took advantage of the governmental freeing of the gas market by providing shoppers with larger access to gas via their nationwide pipeline system. Owing to freeing, as provides enhanced and therefore the value for gas fell by over fifty percent from 1985 to 1991, Enron was able to charge different corporations for victimization their pipelines to move gas. Likewise, Enron was conjointly able to transport gas through different companies’ pipelines (Culp and Hanke, 2003).
Then, Jeffrey Skilling, an associate up and comer operate for the house McKinsey and Company, began operating with Enron. Starting in 1987, Skilling started his add making a futures exchange for Enron within the deregulated fossil fuel sector. To assist produce this market, Skilling argued that Enron required lining up a “gas bank” to assist intermediate gas purchases, deliveries and sales (Culp and Hanke, 2003). Skilling’s major point to Enron chief operating officer Kenneth Lay was that in associate era of post release, customers required risk management solutions within the sort of a fossil fuel derivatives market or, an area wherever shoppers might purchase forward contracts to assist alleviate value volatility usually found within the fossil fuel business.
Incidentally, Skilling was, in line with (Culp and Hanke, 2003), “functioning as a classic bourgeois. Skilling noticed a chance to develop new markets. By introducing forward markets, people may acquire data and data concerning the long run and categorical their own expectations by either shopping for or commerce forward.” Lay finally went for Skilling’s conception of the gas bank and therefore the Enron Gas Bank was created.
Enron was the market maker for gas derivatives within the political era of deregulating of the late 1980’s.
Through their Gas Bank, Enron was able to get and sell gas derivatives. It expeditiously became, “the primary supplier of liquidity to the market, earning the unfold between bid and provide prices as a fee for providing the market with liquidity” (Culp and Hanke, 2003). In addition, a particular undeniable fact was that, Enron had physical assets inside the type of gas pipelines. Any leveraged their position throughout this new market and helped to manage a variety of the residual worth risks arising from its market making operations, otherwise mentioned as Enron Gas Services and later Enron Capital and Trade Resources. Risk management remedies were provided to consumers, in part, through Enron’s data of congestion points that were in all probability to impact provide and demand at intervals the physical system of gas pipelines. This promoted Enron’s trade around blocking points and aided it to require advantage of their data of the surplus or deficit in pipeline capability. All of this was finished at intervals: a financial market supported futures commerce that Skilling had helped to create through his application of the gas bank conception as Enron’s market distributer (Culp and Hanke, 2003).
Unfortunately, Enron went bankrupt: though many blame it on Enron’s abuse of accounting and speech act policies - mark-to-market accounting, utilization of SPE’s to cover debt, victimization, inadequately capitalized subsidiaries and SPE’s for “hedges” to scale back earnings volatility because the primary causes for bankruptcy- simply symptomatic a bigger drawback at Enron: mental state. What eventually brought Enron to its knees was the incompatibility of two competitive philosophic systems concerning however Enron was to control as an organization and build its cash.
Foundation/source of ethical conflicts.
Corporate managers should; to have the investors’ returns maximized according to the law, keeping away from conflicts between principal and agent over interest and increasing the reputational capital of their company (Culp and Hanke, 2003). Corporate untrustworthiness within the Enron’s scandal, for instance, has triggered multiple lawsuits and unparalleled outrage from a variety of stake holders with needs for democratizing composition of company power, up social control answerableness and legislation regulative reform. In a nutshell, am going to explain the source of ethical conflicts at Enron in this section.
There was a conflict of interest between two roles orchestrated by Arthur Andersen- consultant and auditor to Enron-that resulted to; the dearth of attention shown by members of the Enron board of administrators to the off-books money entities with that Enron associated with; and also the lack of honesty by management regarding the health of the corporate and its business operations (Culp and Hanke, 2003). In fact, the culture of Enron was the first reason for its collapse.
The chief executives thought Enron was the finest at everything it did and that they had to safeguard their reputations and rewards as the most triumphant executives in the U.S. When several of their trading ventures and business began to perform feebly, they tried to disguise their own Professional Dilemmas and Market’s failure to Perform (Culp and Hanke, 2003). Actually, it is normal for markets to fail to fulfill their duty of leveling the playing ground between seller and buyer. Such markets malfunctions are how many companies make their money—through temporary monopolies and the use of know-how that is not generally available.
Ethical decision making framework
In this section I will share with you some particular frameworks an organization should put into place to avoid what happened to Enron (its closure). Among them are; scrutinize your ethical climate and put protection in place, in public consign that your organization is ethical and create ethical conducts into business systems.
One should scrutinize his/her ethical climate and put protection into place: think of conducting a official assessment of your business culture from the perspective of perceptions, attitudes, standards of conduct and values, pressures to consign misconduct, risks, communications and vulnerabilities. Pay actual attention to your business values and how best they have been taken in by your Board, major leadership, workers at all levels and major stakeholders(Culp and Hanke, 2003).
Secondly, go public as an Ethical Public Offering. Organizations that are honest about their ethical conduct and standards seem to be more dependable than those who stay hushed (Culp and Hanke, 2003). Some deliver an annual account of their ethics achievements and the problems they faced. Other businesses honestly post their dreams, system of conduct and values on their web sites for general viewing. Lastly define your stand as an ethical corporation. Provide worker and consumers with a written assurance. These are our norms. This is how we evaluate what is fair, good and write. We assure that all workers (at all level) of this corporation will handle each other and consumers accordingly.
Conclusively, to avoid the doom of Enron and other organization whose ethics calls for concern: scrutinize your ethical climate and put protection in place, publicly consign your organization is ethical and create ethical conducts into business systems.
Impact of the business environment
Business environment refers to various forces or surroundings that affect organization operations. Such forces include competitors, customers, distributors, suppliers, industry trends, regulation, substitutes, government activities, demographics, social and cultural factors and the economy. Others are innovations and technological developments. In this topic am going to talk about how Enron closure has affected the business environment.
In Social perspective, as the worth of Enron stock fell in value, many Enron workers lost their jobs and almost all of their retirement funds (Culp and Hanke, 2003). In their confession before Congress, former Enron workers testified that while they had stopped working with $700,000 to $2 million in Enron stock, they now had nearly nothing but their social security savings. To make matters shoddier, many of these workers were limited from selling their stock even as the stock worth depreciated in value, while senior officers of the company were able to put up for sale their Enron stock without similar limitations. The issues of limiting stock sales and the proportion of stock held in people 401(K) strategy are some of the many worrying issues to come up from this crisis.
Enron’s ruling bodies of business did not take account of all coming consequences, important moral dangers result. It now shows that Enron’s administration and the Board upheld favoritism in all of the five to some extent. The many resolution makers indulged with Enron would have better served all stakeholders if they had consigned the full spectrum of repercussion associated with their resolution (Culp and Hanke, 2003). This led to losses to the stakeholders and American economy. Conclusively; business environment should be observed and protected.
Analysis of core problems
This paper evaluates the influence of business culture on ethical behavior by consigning Enron case study. Research shows that business culture is an important driver in worker behavior and that leaders hone this behavior. Despite Enron’s declaration of its core ethical values, key leadership actions made a culture of greed that promoted unethical behavior in every level.
In Enron’s annual statement to investors, it listed its center values as follows: Communication – We have a responsibility to communicate; Respect – We handle others as we would love to be treated; Integrity – We work with consumers and prospects honestly, sincerely and openly; Excellence– We are contented with nothing less other than the very best in anything we do (Enron, 2000).
However, some examples show that the culture opposed these core values. Rather than reinforcing the policy of ethics and the list of worthy core values, the act of leadership recognized a culture with norms of greed and pride. While the written code of ethics discussed the organization’s commitment to “operating the business affairs of the organization in harmony with all applicable policies and in a honest and moral way” and advocated the qualities of integrity and admiration as core values, the attitudes and behaviors of its individual usually stood on the contradicting pole. This is evident in Jeffery skilling case, where, he regularly fired those who failed to aid meet the corporation’s performance objectives and Fastow who started a complicated process of creating special affiliations to secure loans and bundle assets.
Conclusively, corporation culture on ethical behavior is very vital and we can that from Enron’s case study- setting an example of the consequences.
Referencing
Enron. (2000). Enron Corporation 2000 Annual Review to Shareholders. Gladwell, M. (2002, July 22). The talent myth: Are smart people overrated. The New Yorker, 28-33
Culp, C.L., and Hanke, S.H. (2003). Empire of the Sun. In C.L. Culp and W.A.
Free, C., Macintosh, N., and M. Stein. (2007). Management controls: the organizational
fraud triangle of leadership, culture, and control in Enron. Ivey Business Journal
Online.

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