Collapse of Enron

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August 11

[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.] FROM PERSPECTIVE OF CORPORATE GOVERNANCE



Background of Enron3
Enron Business Model4
Summary of transactions & Partnerships 5
Corporate Governance Issues8
Post-Enron Governance Reforms12


"The secret of success is honesty and fair dealing," Mark Twain, once said. "If you can fake these, you've got it made." Apparently, that strategy worked at Enron. For three years, Enron was named one of the 100 Best Companies to Work for in America. In 2000 Enron received six environmental awards. It had progressive policies on climate change, human rights, and anti-corruption. Its CEO gave speeches at ethics conferences and put together a statement of values emphasizing "communication, respect, and integrity." The company’s stock was a favorite among "socially responsible" mutual funds. After Enron's fall, one of the hotter items on e-Bay was a 64-page paperback, the Enron corporate code of ethics. "Never been opened," proclaimed one seller, a former employee. Often referred to as the first major failure of the “New Economy,” the collapse of Enron Corporation stunned investors, accountants, and boardrooms and sent shockwaves across financial markets when the company filed for bankruptcy on December 2, 2001. In addition to crippling investor confidence and provoking questions about the sustainability of a deregulated energy market, Enron’s collapse has precipitated a complete reevaluation of both the accounting industry and many aspects of corporate governance in America.

Enron was founded in 1985 through the merger of Houston Natural Gas & Internorth, a natural gas company based in Omaha, Nebraska, and quickly became the major energy & petrochemical commodities trader under the leadership of its chairman, Kenneth Lay. In 1999, Enron moved its operations online, boasting the largest online trading exchange as one of the key market makers in natural gas, electricity, crude oil, petrochemicals and plastics. Enron diversified into coal, shipping, steel & metals, pulp &paper, and even into such commodities as weather and credit derivatives. At its peak, Enron was reporting revenues of $80 billion and profits of $1 billion.


More than two months after Enron filed for bankruptcy, the stench of scandals refused to die. Shocking revelations about the modus operandi continued to pour in. Public & media attention was initially focused on the company’s close ties with the political establishment & the policy-making bureaucracy. However, more details of Enron’s “business model” so successful until it crashed dramatically after October 2001, indicate that the Enron bubble was just an example of the manner in which speculative finance dominates business. In 1985, Enron started as a pipeline company selling gas. The deregulation of the energy and electricity markets, particularly since the 1990s, for which Enron was a leading campaigner, played a major role in determining its business model, which endeared it to Wall Street for more than a decade. The new opportunities that came its way after deregulation, particularly the ambiguously defined energy-trading rules, gave Enron a head start over others. Enron increasingly became an energy broker, selling electricity and later, other commodities. However, Enron went beyond merely bringing together buyers and sellers - which is what brokers do. Enron's innovative spirit, for which it was recognized by Fortune magazine as the “Most Innovative Corporation in the U.S.” for six years running, was in evidence...
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