Mgmt 5590 Final

Topics: Enron, Enron scandal, Accounting scandals Pages: 10 (3138 words) Published: April 25, 2011
MNGT 5590
Fall2, 2010
Final Exam

Even though this is a take-home final exam, it is not an open book/open note exam. Please complete it using only the vast knowledge you have acquired from class/studying and retained in your brain. This stuff means something only if you have cognitively processed it and absorbed it.

There are 2 parts to the exam – a case with questions and some general questions. Remember: • there is no credit given for filler
• lots of credit for organized concise thought
• legible typing (no fancy fonts)
• proper grammar and sentence structure counts
• and (of course) use of stuff we learned in class (books or class discussion)

Also remember, repeating the question in the answer to make it longer doesn’t help. I left only a small space between questions because you can expand the space as you type, and not take up any more room than necessary.

Finally, if I ask for examples, please give them. If I ask for your opinion please provide it in sufficient depth so I can tell if you have really thought it through.


Few business episodes have been the subject of so much debate and despair as the swift descent of once-admired energy trader Enron. The saga of this firm, which rose to prominence as rapidly as it subsequently fell, serves as a kind of morality tale of corporations, regulators, and investors. As we have discussed in class, the tragic effects of Enron’s overreaching arrogance provide a textbook example of both the best and the worst of American business culture and practice. Although the catastrophe’s complete impact may never be completely determined, it seems likely that Enron’s collapse caused more than one major company to cease to exist, several industries experienced radically changed environments, regulators and investors modified their behavior, and all firms are now subjected to greater scrutiny and regulatory oversight. So how did one of the brightest stars of American business, the company that was called “a proven winner” and “ a New Economy wonder,” come to epitomize one of capitalism’s most serious weakness—unbridled and unprincipled greed?

A little history
Enron began innocently enough with the 1953 formation of the Houston Natural Gas Production Company, which owned a few gas wells near Corpus Christi, Texas. From that time into the 1980s, the company grew by merger and acquisition, and in 1985, it merged with InterNorth, Inc., changing its name to Enron. Kenneth Lay, CEO of Houston Natural Gas, was named chief executive. An important part of Lay’s strategy for the firm was to diversify beyond the regulated and therefore relatively low-profit gas pipeline industry into unregulated markets. Jeffery Skilling joined the firm in 1989, the same year that Enron began to offer financing to oil and gas producers through a subsidiary. Enron continued to expand into other utility businesses, especially electrical power generation and trading, and also increased its international presence with offices in Europe, India, and South America. In 1999, the company first ventured into a radically new industry—broadband services. This unit trades excess Internet capacity, serving as an intermediary between buyers and sellers, in much the same way that it traded electrical power or natural gas. The company’s new strategy was to become a trader for “every commodity on earth,” and at the time seemed to be on its way to accomplishing that feat. By 2000, Enron was the sixth-largest energy company in the world based on market capitalization. Forbes recognized Enron as the thirty-sixth-largest firm in the United States overall and the seventh-largest in sales. Meanwhile, profits abounded. Lay donated generously to the city of Houston, where Enron was headquartered, and in return was given naming privileges for its new sports venue, Enron Field. Lay also raises $100,000 for George W. Bush’s election campaign and was rewarded with a...
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