Enron case analysis
1. Which parts of the corporate governance system, internal and external, do
you believe failed Enron the most?
I believe that both internal & external corporate governance system have shares of failing Enron but the internal has more impact on the failure of this company as following.
These are the internal corporate governance system problems of planning, capital structure & capital management. 1-Enron's management provides nontransparent financial statements did not clearly depict its operations and finances with shareholders and analysts, In addition, its complex business model and unethical practices required that the company use accounting limitations to misrepresent earnings and modify the balance sheet to portray a favorable depiction of its performance ignoring the liabilities . 2-way of calculating the earning & the profit very strange agent model" for reporting revenue (where only the trading or brokerage fee would be reported as revenue), Enron instead elected to report the entire value of each of its trades as revenue. So this reveals (Between 1996 to 2000, Enron's revenues increased by more than 750%, rising from $13.3 billion in 1996 to $100.8 billion in 2000. This extensive expansion of 65% per year was unprecedented in any industry, including the energy industry which typically considered growth of 2-3% per year to be respectable. 3-Enron management obsessed with a focus only on short-term earnings to maximize bonuses.
4- Management culture pursue Extravagant spending especially among the executives. Employees had large expense accounts and many executives were paid sometimes twice as much as competitors.
5- Enron executives’ established long-term fixed commitments which are not matching with the fluctuation of future energy prices. The external corporate governance system problems:
1-Financial audit role:
Enron executives hired numerous...