Topics: Enron, Jeffrey Skilling, Kenneth Lay Pages: 12 (3258 words) Published: September 21, 2014



BFT 503 businesss ethics & csr


MATRIC NO : 1333430136

Dr. Abdullah bin osman

Enron : Questionable Accounting Leads To Collapse

ENRON CORPORATION. Enron, a corporation headquartered in Houston, operated one of the largest natural gas transmission networks in North America, totaling over 36,000 miles, in addition to being the largest marketer of natural gas and electricity in the United States. Enron managed the world's largest portfolio of natural gas risk management contracts and pioneered innovative trading products. The company was on Fortune's "Most Innovative" in the United States listing for several years running and reached #7 on the Fortune 500 list in 2000. Its bankruptcy in December 2001 was the largest such filing in United States history. The name Enron became synonymous with corporate greed and corruption, and its demise cost investors and employees over $70 billion in lost capitalization and retirement benefits. Enron was formed by a merger between Houston Natural Gas (HNG) and InterNorth. HNG was formed from the Houston Oil Co. in the 1920s and provided gas to retail customers in Houston. In 1976 it sold its retail gas business in Houston to concentrate on gas exploration and production and other businesses. By 1984 HNG had assets of $3.7 billion, sales of over $2 billion, and profits of $123 million. InterNorth began as Northern Natural Gas Company, organized in Omaha, Nebraska, in 1930. When InterNorth, with one of the nation's premier pipeline networks with revenues of $7.5 billion in 1984, found itself the potential takeover target of corporate raiders, CEO Sam Segnar sought to buy out HNG, and a deal was announced in May 1985 in which InterNorth would acquire HNG for $2.4 billion. The arrangement stipulated that the merged entities would be known as HNG/InterNorth and be headquartered in Omaha with Segnar as chairman and CEO. However by 1986 Segnar had retired, Kenneth Lay was chairman and CEO, and the company was renamed Enron with corporate headquarters in Houston. The new company had the second largest pipeline network in the United States with over 36,000 miles of pipe stretching across the continent and north into Canada. In 1984 the Federal Energy Regulatory Commission eased some of the pricing restrictions on natural gas and allowed local gas distribution companies to buy gas from anywhere and anyone. Ken Lay rapidly gained a reputation for effectiveness during this period by negotiating Enron's escape from some of the more burdensome and expensive "take-or-pay" contracts from the 1970s. In 1989 Enron created a new way to market natural gas to consumers—the Gas Bank—a concept developed by Jeff Skilling, a consultant at McKinsey & Co. The Gas Bank served as an intermediary between buyers and sellers of gas and became a success. Natural gas was now traded as a commodity, and Skilling left McKinsey for Enron's trading operation in 1991. Enron began to view itself primarily as a trader rather than as a gas producer and began to divest itself of heavy pipeline assets; by 2000 it owned five thousand fewer miles of pipe than in 1985, but its gas financial transactions represented over twenty times its pipeline capacity. Enron extended the natural gas model to become a financial trader and market maker in electric power, coal, steel, paper and pulp, water, and broadband fiber optic capacity. In 1994 Congress gave the states the authority to deregulate gas and electric utilities. The newly opened California market was a major target, and Enron spent $100 million a year to generate business there. That effort was cancelled in 1999, but Enron continued to supply wholesale power to California. The ensuing power shortage in California in 2000 rocked the state, and Enron was accused of manipulating supplies. Eventually two Enron traders...
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