Enron
Enron was established way back in 1985 and followed by its merging with Houston Natural Gas Co. and Omaha based InterNorth Co. Furthermore, the CEO of Houston Natural Gas, Kenneth Lay, became Enron’s CEO and chairman replacing Samuel Segner and made Enron an energy trader and supplier.
According to Investopedia, Enron garnered the “America’s Most Innovative Company,” way back in 1995 for six consecutive years. In 1998, Andrew Fastow was promoted as CFO and he formed networks to hide the firm’s losses. In February 2001, Jeffrey Skilling replaced Lay as CEO, however, Lay was still part of the board.
According to Macintosh and Stein (2007), the company had a loss of $14 million on its first year of operation. Still, Enron wanted to be normal just like any natural gas firm competing on its environment and being regulated by energy regulating bodies. The company had lots of debt and losses in its early years, so to fight these losses and debts, it underwent hostile takeover and it gave a good impression to Wall Street.
According to “The History of Regulation” (2004), there were changes in American governmental policy in regards with the operation of natural gas industry in favor of Enron. Federal Energy Regulatory Commission (FERC) Order No. 436, Natural Gas Wellhead Decontrol Act of 1989 (NBGWDA), and FERC Order No. 636 of 1992 were the most remarkable federal policies that deregulated the natural gas market way back in 1980. These policies lead to the removal of the issues between the federal government and natural gas market, helping to cope up with the economic crisis way back in 1970.
According to Niskanen (2005), Enron, together with the companies it invested for projects in, went bankrupt which made Enron incapable to lay off its debts. Enron got engaged in accounting falsification like mark-to-market accounting, hiding of debts and losses and usage of financially unstable subsidiaries
According to Northouse (2004), leadership is one of the factors why Enron went bankrupt, and on its case, there’s an absence of integrity. A person with integrity, aside from being honest and trustworthy, is person of principle and a person who take responsibility in everything he does.
According to Free, Macintosh and Stein (2007), lack of integrity was showed by many board members inside Enron, including Jeffrey Skilling. Skilling, and his leadership, was brave and full of determination. He is even a leader with full of vision, especially in the maximization of profits. Yet, through his strive to higher profits, he took it too aggressive and forgot to put integrity on the organization’s culture. Members, like for example Andrew Fastow, need to disclose financial information in full honesty, but Skilling provided his subordinates with lack of motivation to disclose Enron’s real financial position. Individuals who still possess integrity to tell the truth were dismissed by the process known as “rank and yank.”
According to Pojman (2006), one of the reasons why Enron experience such pitfall is ethical egoism, in which it is defined as a doctrine that states that it is morally right to pursue for own interest. There are for kinds of it, psychological, personal, individual and universal, on which Enron’s case fall on the latter. Universal ethical egoism means that everyone pursues his/her own self-interest, whereas you can expect everybody to do everything for the maximization of their interests. Enron’s heads, in aiming for their self-interests forgot to value ethical behaviors like integrity, which leads to a conceited culture in the corporation.
According to Gini (2004), the too much execution of universal ethical egoism leads to disregarding of systems that established management’s accountability, example of which is Peer Review Committee (PRC). Leaders of Enron really focuses on profit maximization and increasing market share without having ethical considerations, which happened to be the missing connection between the heads and the subordinates. Without these ethical considerations, Enron played as the prey of the management’s greediness and rationalized interests which put the company’s status in vain.
According to Watkins, the hidden message of Enron on its performance and operations is to make numbers, numbers and numbers, you can steal if you want, just don’t get caught. It leads to a culture with little emphasis on values and integrity.
According to McLean and Elkind, the involvement of other known Wall Street firms is one of the most ignoble facets of the Enron’s scandal. These firms like J.P. Morgan, Citigroup, and Merrill Lynch enables fraud as they were partners to Enron. The use of prepays, which are loans that Enron regards as operating cash flow, made the involvement possible. Existing prepays are being laid off through new prepays to sustained investments in new businesses.
According to Baker (2003), he viewed the scandal of Enron in various perspectives. He pointed deregulations and such external factors made the pitfall possible. He studied how Enron develops and turns from a gas distributing firm into a international trading one and how it shrunk.
According to Joanne and John (2006), too much concentration on the firm’s size, profitability and survival on Enron’s units adds to cause of Enron’s scandal. As Enron wanted to achieve all of those, it entered every opportunity it can, it obtained and disposed businesses.
According to Levitt (2000), accounting restatement tends to clarify an event. Investors’ expectations about the impact of such restatements are unknown. In Enron’s case, whenever they announced earning restatements, investors would not really know.
According to Berlau (2002), the malpractice of Enron’s executives and managements led to the question of public on how these people who were known to be smart were too coward to tell the truth. These people surely studiedmin high class Universities. They are known to be educated yet they still chose to put more concentration on their self-interests at the expense of the company’s name.
According to Cariola (2005), human capital and talent are the most important assets a company can have. Truth to be told, Enron’s executives are gifted with high intellectual and reasoning. They even made Enron the most innovative company through its progressive growth. Yet, they achieved it in wrong and fraudulent way, making this growth worthless.