Lesson Zimbabwe Can Learn from Enron Saga

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MIDLANDS STATE UNIVERSITY

FACULTY OF SCIENCE AND TECHNOLOGY

DEPARTMENT OF COMPUTER SCIENCE AND INFORMATION SYSTEMS

NAME MANDINIKA MAX

REG NUMBER R0432786

LEVEL 1:2

PROGRAMME MSc INFORMATION SYSTEMS MANAGEMENT

MODULE MIM 710 –E-CORPORATE GOVERNANCE

LECTURER MR T TSOKOTA

ASSIGNMENT 1

Question: What lessons can Zimbabwe learn from Enron?

Introduction

Enron Corporation was one of the world's leading energy companies based in Texas, USA. Before filing for bankruptcy in the year 2001, Enron employed more than 20,000 people. Its revenue in the year 2000 was more than $100 billion. It was named as "America's most innovative companies for six consecutive years by Fortune. Unethical and illegal business practices at Enron led to the creation of Sarbanes - Oxley Act of 2002.

What led to the fall of Enron?

Enron is synonymous with corruption and corporate fraud. The Enron Corporation was one of the largest companies which sold electricity and natural gas, distributed energy and other services like bandwidth internet connection and provided risk management and financial services to consumers the world over. This company became rich because of its initiative marketing and endorsement of power and communications bandwidth services and risk management offshoots. All these services were supervised by the operations management department but there existed other management departments which carried out half of their functions. Though these functions were purely executive in nature, there was lack of integrity, responsibility, creativity and control. The absence of these ethics led to the bankruptcy of the company. In other words, Enron ethics was ignored by the employees while working.

In an organization, the functions of the operations management department should consist of ethical values, integrity, competence and clear accountability of term papers. But Enron did not abide by these functions which led to its bankruptcy. We may say that the company's employees lacked Enron ethics. As the company's reputation grew in the global world, the competition within the employees rose and hence individual greed also generated in the atmosphere of the company's egotism. Every employee wanted to make it big, achieve a lot within the company, and thus there was high motivation to succeed and earn more. But in such an atmosphere, the tendency to distrust people around is high as each is only concerned about themselves. With the mistrust among the employees booming, highly confidential term papers got used in trade contracts. Thus, trading contracts were made in secret and its admission was also kept undisclosed. Dealings in the finance section grew rapidly without paying much attention towards the company's goals. Hence, the employees had started to ignore Enron ethics. On the hand Enron doled out huge sums of money to charity, but on the other hand it systematically defrauded its financial statements during the 1990s along with its accounting firm Arthur Anderson. Enron's methods were creative and systematic. Its financial statements and accounting practices were not clear. For example, it had made it a practice of booking costs of cancelled projects as assets. The explanation was that there was no official letter stating that the project was cancelled! These things had "snow ball" effect. Also it had created special purpose offshore entities in order to avoid taxes and to raise profitability. This also gave freedom to the management to move currency and to hide losses. The then CFO, Andrew Fastow was the brain behind all these arrangements. His creation of these off books companies enabled him and his friends and family members make millions of dollars at the expense of other stake holders. Through "EnronOnline", expected future profits were tabulated as if it was today's. Some of the...
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