Capitalism, in its purest sense, could well be a nearly-perfect system. The idea of free enterprise, in which a provider offers goods or services to a needy consumer, and in which supply and demand determine price is a concept that is fair to all who participate in the process. Conversely, it can also be a breeding ground for greed, allowing the more powerful to control the markets. On might argue that some greed is necessary to power the market toward producing a better product. But when human greed is allowed to corner the market through fraud and corruption, then the system works only for the few, leaving consumers with fewer and poorer quality goods or services. Therefore, regulation is required to keep the market in balance for all. It …show more content…
Skilling accepted only promising new shakers and movers from the cream of MBA education and vying for them shrewdly against the best investment banks (Thomas). He demanded aggressive investing. (Skilling) As the company grew to include water supply, electricity, and power plants, as well as internet video and broadband communications, it also set itself up to fail in many of its endeavors at a cost of billions. The balance sheet, however, showed steady profits from over $13 billion in 1996 to astonishing $100 billion in 2000 (Enron). But why were those heavy losses not affecting their bottom line? Once again, Jeffrey Skilling worked his magic. He developed an innovative new method of accounting called “mark-to-market” (Enron). Outstanding contracts were valued by market prices, varying accordingly. This method left room to alter prices artificially. By setting up SPE’s or special purpose entities, Enron could hide its gains and losses at will within their books, thereby removing them from Enron’s books. These new side ventures looked respectable on paper, to; the company seemed to be ever-expanding (Enron). Andrew Fastow was posed to come on board with Enron with an MBA from North Western University. He had been enticed away from continental Illinois National Bank and Trust (Fastow). Fastow quickly fell in line behind Skilling as Skilling had with Lay. …show more content…
Their employees were being persuaded to invest their salaries and bonuses solely in Enron stock. Brilliant earnings reports were dangled in front of investors’. They did not matter that those reports were erroneous. To make matters worse, upper officials were embezzling profits. Of course, the public was kept in the dark about the new and interesting accounting practices, not to mention the faults profit-and-loss reports. Even the rolling blackouts that played the California electrical grid are not believed to be artificially created in order to drive of the price of Enron stocks by causing s shortage in supply (Peavler). By applying Jeffrey Silling’s gas-bank model to other commodities, Enron enabled itself to create a demand for virtually anything: its futures contracts included “coal, paper, steel, water and even weather (Thomas). By the end of 1996, the Enron Capital and Trade Resources division had grown in revenue from $2 billion to $7 billion. Two hundred employees became two thousand. It was the biggest trader of natural gas and electricity in the world
The Fastows headed to Mrs. Fastow's native Houston in 1990, both taking jobs at a young company called Enron. Just five years old, Enron was starting to evolve from a natural-gas and pipeline company into a trading firm. Mr. Fastow was one of the first managers hired by Mr. [Jeffrey Skilling], who himself had only recently arrived, from management consultants McKinsey & Co. Brought into Mr. Skilling's inner circle, Mr. Fastow returned the loyalty, telling colleagues he had named a child after his mentor. When Mr. Skilling became Enron's president and chief operating officer in early 1997, he and Mr. [Kenneth Lay] promoted Mr. Fastow to lead a new finance department. A year later, Mr. Fastow became chief financial officer.
In 1985, after federal deregulation of natural gas pipelines, Enron was born from the merger of Houston Natural Gas and InterNorth, a Nebraska pipeline company. In the process of the merger, Enron incurred a lot of debt and, as the result of deregulation, no longer had exclusive rights to its pipelines. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow. Kenneth Lay, CEO, hired McKinsey & Co. to assist in developing Enron’s business strategy. It assigned Jeffrey Skilling to the task. Skilling, who had a background in banking and asset and liability management, proposed a revolutionary solution to Enron’s credit, cash, and profit worries in the gas pipeline business: create a “gas bank” in which Enron would buy gas from a network of suppliers and sell it to a network of consumers, contractually guaranteeing both the supply and the price, charging fees for the transactions and assuming the associated risks. Thanks to the young consultant, the company created both a new product and a new paradigm for the industry—the energy derivative. Lay was so impressed with Skilling’s ...
The Enron Corporation was founded in 1985 out of Houston Texas and was one of the world 's major electricity, natural gas, communications, and pulp and paper companies that employed over 20,000 employees. This paper will address some of the ethical issues that plagued Enron and eventually led to its fall.
The American Dream typically involves working hard to build up an organization, maintaining it well, and reaping the benefits. This vision most certainly drove the formation of the energy powerhouse known as the Enron Corporation. The company began as two average sized organizations and within 15 years emerged as America’s seventh largest company. The organization employed close to 21,000 staff members with locations in over 40 nations around the world. Unfortunately, this success was decimated by numerous scandals involved with accounting practices. From lies of profits to questionable dealings, such as concealing debts, the parties involved with running the company had made some fatal errors. The end result left Enron without creditors and investors, leading to the firm to file for Chapter 11 bankruptcy (British Broadcasting Corporation, Enron Scandal at a Glance). The story of this once remarkable company is one that can be traced from the decisions made from its inception leading all the way to the much publicized trials that ensued.
Enron was a Houston based energy, commodities and services company. When people hear the name Enron they automatically associate their name with one of the biggest accounting and ethical scandals known to date. The documentary, “Enron: The Smartest Guys in the Room,” provides an in depth examination of Enron and the Enron scandal. The film does a wonderful job of depicting the downfall of Enron and how the corporate culture and ethics were key to Enron’s fall. As the movie suggests, Enron is “not a story about numbers, it is a story about people.”
Enron was formed following a merger between two natural gas companies in 1985, Houston Natural Gas and InterNorth.3 When Enron formed, it had accumulated a large sum of debt, roughly 2 billion dollars.4 As a result of deregulation, Enron no longer had the exclusive rights to its pipelines, resulting in the company hemorrhaging money. Kenneth Lay5, the chief executive officer (CEO) of Houston Natural Gas, became Enron’s CEO. Lay knew he had to quickly come up with a new innovation to keep the company afloat. Lay hired McKinsey & Company6 to help in coming up with a business strategy for Enron. McKinsey & Company assigned Jeffrey Skilling7 to Enron’s company as a consultant. Skilling, who had a background in banking, asset and liability management, came up with a solution to Enron’s financial crisis in the gas pipeline business. He said to create a “gas bank”, in which Enron would buy gas from a network of suppliers and sell it to a network of consumers, allowing them to control the supply and price of the gas. Enron’s debt was no more, and Lay was so impressed with Skilling, that he created a new d...
Enron deliberately created artificial shortages in California for electricity, two days in a row, causing the price to skyrocket. Enron is a natural gas and electricity plant/business that buys and sells energy. The most influential historical event that has happened during the 21ST century is The Enron Scandal because the loss sustained by investors exceeded $70 billion and only a small amount of the lost money was returned.
The overall view clarification of the issue illustrates the evolution of Enron’s innovations and fraud. The business records of the company financial economists and accountant’s uncovered considerable number information and incentive issues. The issues both complicate and potentially resolve the appraised valuation questions such as; earnings growth, stock splits, dividend changes, free cash flow limitations, share price-based compensation and hedging of market risks. The Enron Company contributed large sums of money to non-profit organizations for the purpose of acting on probable ethical issues before they become legal dilemmas. The company failed to inform its consumers of the business decisions made even though they had knowledge that the person at the other end of the business deal did not. The Enron Company filed a Chapter 11 to seek bankruptcy protection. The uncertainty of the company’s standings impacted the market’s confidence in...
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
Investors and the media once considered Enron to be the company of the future. The company had detailed code of ethics and powerful front men like Kenneth Lay, who is the son of a Baptist minister and whose own son was studying to enter the ministry (Flynt 1). Unfortunately the Enron board waived the company’s own ethic code requirements to allow the company’s Chief Financial Officer to serve as a general partner for the partnership that Enron was using as a conduit for much of its business. They also allowed discrepancies of millions of dollars. It was not until whistleblower Sherron S. Watkins stepped forward that the deceit began to unravel. Enron finally declared bankruptcy on December 2, 2001, leaving employees with out jobs or money.
The company concealed huge debts off its balance sheet, which resulted in overstating earnings. Due to an understatement of debts, the company was considered bankrupt in 2001. Shareholders lost $74 billion and a lot of jobs were lost because of the bankruptcy. The share prices of Enron started falling in 2000 and in 2001 the company revealed a huge loss. Even after all this, the company’s executives told the investors that the stock was just undervalued and they wanted their investors to keep on investing. The investors lost trust in the company as stock prices decreased, which led the company to file bankruptcy in December 2001. This shows how a lack of transparency in reporting of financial statements leads to the destruction of a company. This all happened under the watchful eye of an auditor, Arthur Andersen. After this scandal, the Sarbanes-Oxley Act was changed to keep into account the role of the auditors and how they can help in preventing such
Thomas, C.W. (April, 2002). The rise and fall of enron. When a company looks too good to be true, it usually is. Journal of Accountancy, Retrieved June 15, 2011, from http://www.journalofaccountancy.com/Issues/2002/Apr/TheRiseAndFallOfEnron.htm
Enron had rose to the top by engaging in energy projects worldwide and speculating in oil and gas futures on the world’s commodities markets. They also provided financial support to some presidential candidates and members of the U.S. Congress. However, Enron had a secret. The corporation had created partnerships located in off-shore
Prior to 2000, Enron was an American energy, commodities and service international company. Enron claimed that revenue is more than 102 millions (Healy & Palepu 2003, p.6). Fortune named Enron “American most innovative company” for six consecutive years (Ehrenberg 2011, paragraph 3). That is the reason why Enron became an admired company before 2000. Unfortunately, most of the net income for the years 1997-2000 is overstated because of unethical accounting errors (Benston & Hartgraves 2002, p. 105). In the next paragraph, three main accounting issues will identify for what led to the fall of Enron.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,