One cannot talk about or try to explain what took place with the downfall of Enron with out a brief history of the company. In 2001 they were considered one of the most innovated company and was ranked the fifth largest company on the Fortune 500, leading the market in energy production, distribution and trade (Culpan &Trussel, 2005). The company went from handling energy distribution to becoming a diversify company that dealt with many commodities.
According to Healy & Palepu, (2003) from 1999 to 2000 Enron stock increased from 56 percent to 87 percent, by December 2000 it was valued at $83.13, the market value exceeding $60 billions, which was 70 times the the earning and six times the book value.
This did not last long because just a quickly as they rose so did they fall. Within a year their stocks were down to little of nothing, and their name was not one someone wanted to be associated with. The downward spiral can be contributed to the organization culture and improper checks and balances.
The downward cycle started when Jeff Skilling resigned August 14, 2001, although it may not have been obvious to most but the handwriting was on the wall. After Skilling left Kenneth Lay took over as CEO. Things were already bad, but Lay chose to ignore them, although he was warned. According to Watkins (2003) a company by the name of Raptor, which did not have any business with anyone else beside Enron owed Enron 700 million, under certain hedging agreements. This was a big red flag.
According to Farlex Financial Dictionary (2012), the meaning of a hedge is that it is used to reduce the risk of an investment by making an off-setting investment. It reduces risk, but may also reduce profits...
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The government still has much work to do. Enron may have been the first, but they won 't be the last. Corruption within organizations happen everyday it just that they have not been caught.
The purpose of the paper is to demonstrate how lack of moral value and ethical practice can lead to the downfall of such a company as Enron, which was once a Fortune 500 company. It looked good on the outside, but was rotten to the core on the inside. A company culture should foster a climate that works from the out-side in instead of the inside out. The goal should be for the greater good of all and not just a few. Also, organization needs to be on top of it bookkeeping practice. The auditor should not have any conflict of interest. There need to be a better check and balance system in place, to prevent something on this scale of magnitude, from happening again.
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