The Rise and Fall of Enron

The meteoric muster and ruination of Enron is one of the most notorious tales in the history of corporate America. Enron was the seventh-largest participation in the United States in 2000 and Fortune clip had declared it as Americas most innovative company for six right away twelvemonths its share harm had climbed from $ 10 a share in 1991 to over $ 90 a share in August 2000 man its revenue jumped to more than $100 billion. (Rise and Fall of an Energy freak)No one could have predicted that sooner the end of the following year the rising star of corporate America would be filing for bankruptcy, oscillation investor confidence to the core and signalling the end of the longest bull-run in the American root exchanges history. The ramifications of the dramatic collapse still reverberate in global fiscal and zip markets as well the U.S. courts, where a number of former Enron managers position serious criminal charges. This fairy tale rise and ignominious fall of Enron is the s ubject of this paper.The Pipeline and Energy Company Enron Corporation was formed as a result of a 1985 merger of Houston Natural Gas (HNG) and InterNorth-a neon based gasconade pipeline company. Kenneth Lay, CEO of HNG, became Enrons first CEO and proceeded to raise it the first nationwide natural gas pipeline. Enron soon became involved in in the transmission and distribution of electricity in addition to gas in the US as well as the development, construction, and operation of big businessman plants and pipelines ecumenic. Its win were, however, modest as in those days, susceptibility was a government-sanctioned monopoly. (Lindstorm) victorious Advantage of Deregulation Things began to change as the gas and electricity sectors were deregu freshd by the early 1990s. Kenneth Lay decided to deem advantage of the deregulation and employ Jeffery Skilling a young consultant with a banking and liability management background, in 1990-making him the CEO of a new division in Enron - the Enron Finance Corp. The bridge proceeded to transform Enron from a boringly predictable and regulated Gas Company into one of the largest energy traders in the US that would eventually dominate the calling of energy contracts and financial instruments kn give birth as derivatives.Trading Becomes the Mantra As Enrons revenues sky-rocketed in its initial forays into wholesale buying and selling of gas and electricity, Skilling was emboldened to extend the trading concept into almost any commodity that could be traded, i.e., futures contracts in coal, paper, steel, piss and even weather. Taking advantage of the growing use of the Internet, Enron started Enron Online (EOL) in October 1999-an electronic commodities trading Web site that was hugely successful almost overnight. Skilling employ the brightest talent from the top MBA schools and turned them into high-flying traders with incentives to eat what they killed. (Thomas, para on The Best, the Brightest) piece of music the company grew rapidly through the 1990s, just about of the worst manifestations of its culture-obsessions with bonuses, the logical argument price and exotic business relationship-were likewise growing, and out of control. (Fowler, Enrons Implosion) Enron did make huge profits for a short while due to highly volatile energy prices, and thither was widespread perception in the company about the unlimited capability of online trade and technology innovations much(prenominal) as the broadband.Things started to change in the late 1990s. Other energy companies such as Dynergy, Duke Energy, and El Paso had entered the field of energy trading and the competition started to eat into the huge profit margins of Enron. Other factors such as falling energy prices in early 2001, the approaching worldwide recession and the broadband bubble burst began to work a inducest Enrons dream run. The company, in the meantime, had embarked on a culture of cutting trading deals that had a momentum of i ts own that was hard to stop.Disregarding Ethics Ethics at Enron was put on the back-burner as its corporate culture was focused on making deals and change magnitude Enrons share value. Skilling was relentless in his push for creativity and competitiveness, giving rise to a growth-at-any-cost culture, overriding all checks and balances, and suppressing all voices of caution. (Fowler) Its ethics was personified by Kenneth Lays exercising of his stock options and pocketing profits, even as he was promoting Enron shares as a bargain to employees. It was also reflected in the action of some Enron executives who pressurized a brokerage company to take action against a broker who advised some Enron workers to sell their shares. (Wee, incorporate Ethics)Dubious Accounting It was hardly surprising, therefore, that several Enron resorted to innovative accounting practices to show inflated profits and hiding their losses. Under Andrew Fastow (Enrons Chief monetary Officer) personal guidanc e, the company made use of thousands of Special Purpose Entities (SPEs), some of them owned by Fastow himself, to park its troubled assets that were falling in value, so that the balance sheet continued to show growing profits.Conflict of interest group Despite serious accounting irregularities, no one was prepared to misconduct the whistle because of conflicts of interest of several key players. Enrons auditor, Arthur Anderson was also its consultant and stood to gain from seeing no evil Kenneth Lay was busy exercising his stock options before the share value fell. J.P. Morgan, while underwriting bonds for Enron, was involved in trading derivatives contracts with the company and had a substantial share in Enron stock. Andrew Fastow was making millions in profits by doing business with the firm through secret limited partnerships.As a result, although the fall of Enron when it filed for bankruptcy in December 2001 seemed stunningly fast to most people, conditions for the collapse had been brewing for a long time.