Analysis Of Enron

Enron was an American energy and service company which was located in Houston, Texas. It’s net value reached up to 70 billion dollars over the course of a decade. With this topic, it is important to understand how independent arrogant, corporate recklessness, and US greed collaborative could cause the biggest economic scandal.

Enron was founded in 1985 by Kenneth Lay as a natural gas company in the pacific northwest. Lay later then became the CEO of Enron, with a salary of $200 million. Enron benefit from the energy markets of US since they were being deregulated, which means it was being transmitting from government control into free market. During this time, Lay hired a visionary Jeffrey Skilling, who moved the company to Houston, Texas

Since, Fastow was solely in charge of this he was able to get away with skimming money off each transaction. Pulling in about 30 million dollars in profit for himself over time. Additionally, Enron manipulated the energy market to earn more money. Enron would purchase electricity futures and then periodically shut down power plants in California, the wide spread power outages would cause the futures to increase in value, which Enron then sold for a profit. Throughout the late 90s, they used these methods to record outstanding revenue making stock price to rise. By the late 2000s, Enron executives started to rise including Skilling, Fastow and Lay selling the company’s losses and failures and sold their respective stocks cashing in millions. Meanwhile, they were still reassuring investors that everything was fine and that this investment would be a sure thing. Then Enron stock started to fall anyway. Top analysis doubt the quality and the legitimacy of Enron’s transactions. A reporter named Bethany McLean published an article questioning the value of Enron’s stock which caused it to drop even further. As the stock when sub 20 dollars, executives started to cash in their stakes.

They encouraged employees to break the law to be able to bring in more profits. Skilling provided an environment of risk taking by taking employees to exotic trips, like dirt biking, etc. On multiple occasions people were hospitalized due to these trips. These stories became urban legends at Enron and the team of executives were soon idolized as men who knew no limits. Recklessness and risk taking behavior soon was known as a positive behavior within the company, which lead to an unhealthy company culture. This culture lead the company to make immoral decisions. Anderson a highly respected accounting firm was hired to validate and review all of Enron’s books and records. Instead, Anderson covered up all of their mistakes and was later charged with obstruction of justice for shredding and burning all of Enron’s books. However this biggest issue was being overlooked by the governance of the public capital markets and the auditors. The capital markets can work productively only if the highest standard accounting, transparencies and disclosures are observed. Anderson, admitted to “error of judgement” in its treatment of Enron’s debt in one of the off-balance-sheet vehicles. These vehicles led