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Enron Case Study

Author:
Robert Jon Peterson (309)
Enron Case Study
Enron Case Study
Seven years after the fact, the story of the meteoric rise and subsequent fall of the Enron Corporation continues to capture the imagination of the general public. What really happened with Enron? Outside of those associated with the corporate world, either through business or education, relatively few people seem to have a complete sense of the myriad people, places, and events making up the sixteen years of Enron’s existence as an American energy company. Some argue Enron’s record-breaking bankruptcy and eventual demise was the result of a lack of ethical corporate behavior attributed, more generally, to capitalism’s inability to check the unmitigated growth of corporate greed. Others believe Enron’s collapse can be traced back to questionable accounting practices such as mark-to-market accounting and the utilization of Special Purpose Entities (SPE’s) to hide financial debt. In other instances, people point toward Enron’s mismanagement of risk and overextension of capital resources, coupled with the stark philosophical differences in management that existed between company leaders, as the primary reasons why the company went bankrupt. Yet, despite these various analyses of why things went wrong, the story of Enron’s rise and fall continues to mystify the general public as well as generate continued interest in what actually happened. The broad purpose of this paper is to investigate the Enron scandal from a variety perspectives. The paper begins with a narrative of the rise and fall of Enron as the seventh largest company in the United States and the sixth largest energy company in the world. The narrative examines the historical, economic, and political conditions that helped Enron to grow into one of the world’s dominant corporation’s in the natural gas, electricity, paper and pulp, and communications markets. Upon providing the substantive narrative of Enron’s rise and fall, the paper continues with an explanation of what went wrong based on two frameworks provided by leadership and ethical theory. From the leadership framework, both trait and transformational leadership theories have been identified as the appropriate analytical tools for examining Enron’s culture whereas the two ethical systems of egoism and mixed deontology provide the philosophical foundations for analyzing the Enron matter from an ethical perspective. The third and final part of the paper examines the policy responses to the Enron scandal. After providing an overview of the Sarbanes-Oxley (SOX) legislation, the policy theories associated with the work of Frank Baumgartner and Bryan Jones (punctuated equilibrium) and Murray Edelman (symbolic politics) will be applied in order to gain a better understanding of Congress’ policy response to the Enron matter. It is hoped that via the application of these two policy theories, future policy makers will gain a better appreciation for how and why policy is created as well as the overall effect policy has on governance issues within the private and public sectors. Background Narrative

The Rise of Enron
Enron Corporation was born in the middle of a recession in 1985, when Kenneth Lay, then-CEO of Houston Natural Gas Company (HNG), engineered a merger with Internorth Incorporated (Free, Macintosh, Stein, 2007, p. 2). Within six months of the merger, the CEO of Internorth Inc., Samuel Segner, resigned leaving Lay as the CEO of the newly formed company. Shortly thereafter, HNG/Internorth was renamed Enteron, a name which was later shortened to Enron in 1986. The new company, which reported a first year loss of over $14 million, was made up of $12.1 billion in assets, 15,000 employees, the country’s second-largest gas pipeline network, and an enormous amount of debt (p. 2). In the initial years, Enron attempted to function as a traditional natural gas firm situated in a competitive, yet regulated energy economy...
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