Studies on the collapse of enronEnron was known to be the nation’s seventh largest company which valued about 70 billion dollars concentrating on Natural Gas refineries. Founded by Kenneth Lay in 1985 and ended its business due to bankruptcy in 2001. The objective and goal of Enron was
Official objective - To be the leading company in the world.New objective – To be the leading company in the world.Unofficial objective – To make money by risk taking.There were a lot of ethical issues which contributed to Enron’s bankruptcy. From the documentary called “Smartest man in the room” I will elaborate my thoughts about the causes of Enron’s downfall below. Encouragement of dishonesty.
Kenneth lay was informed by the auditor in the board meeting that his two oil traders, Louis Borget and Tom Mastroeni were manipulating Enron’s earning, destroying records, gambling the earning and presented a falsified bank records to Enron. Kenneth Lay ignored it and did nothing. In fact Kenneth Lay sent a telex to Louis Borget saying “Please keep making us millions”. This shows that Kenneth Lay instead of reducing Enron’s risk he encouraged his traders to gamble more which increases the risks of the company. Managing by risk.
When Jeff Skilling appeared to be the new CEO of Enron, instead of relying on the production of natural gas to get profit, Jeff skilling introduced a new way to get profit, by transforming energy to be traded for stock market, he said “we like making risk, because we make money by taking risk” They keep losing billions of dollars by making questionable risk but the way enron cover up losses are by applying mark-to-market. Mark-to-Market accounting allowed Enron to book potential future profits. In Mark-to-Market accounting, the company used projected figures for their profit rather than using actual figures, this may cause to misleading investors as they only seen the profits as what the company said The lack of untruthfulness
If the management was truthful,...
Please join StudyMode to read the full document