Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information.
Enron was a greatly admired Company prior to the 1980’s because it managed to develop from a pipeline Company into one of the world’s largest energy traders. The Company made use of the internet to offer and purchase electric power and common gas supplies for utilities, mechanical force clients coupled with offering assistance against the rising power costs.
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Prior to 2000, Enron amassed major respect for its name thanks to the way it quickly rose in income in both the local and international stock market in a really short time. The Company’s operating income in the year 2000 was recorded at $100.7 billion with an after-tax net income of $979 million. Enron was labeled the most creative Company in America for six consecutive years thanks to the quick changes in the business model over the years.
Why did the company fail? Identify and explain weaknesses, if any, of each of the following areas:
Accounting issues
Firm governance
Incentive system
Conflict of interest between different parties
And…?
First, the accounting department failed Enron because it made deliberate alterations to the Company’s financials to the general population, assumed groups, and stockholders. The business made multiple organizations, each of diverse firms, and used them in the payment of their debts. There were, therefore, several disputable financial statements.
As far as firm governance was concerned, the main cause of Enron’s downfall was the businesses’ corporate conduct. The Company was too much focused in making profits through deceptive means and did not keep in mind their social obligations.
The incentive system runs hand in hand with the Company’s moral conduct. The Company devised a number of dishonest ventures like using alluring rewards and heavy compensations to attract new supervisors with the aim of staying ahead of the competition.
The association also experienced several situation conflicts after the employment of Arthur Andersen as the organization consulting entity and auditing firm.
The collapse of Enron left 21,000 unemployed workers and also wiped out the little that there was for the stock financial specialists’ property.
What was the major change in regulation after the fall of Enron, and what were the legal consequences for the key players involved?
Enron was tried to be reclaimed after its fall by the issuing of the Sarbanes-Oxley Act in 2002. This Act required some harsh changes to be made with the aim of enhancing financial disclosures and refrain from deceptions that come with accounting. The Act also facilitated the awareness of the business code of ethics. For this reason, all those who were responsible for fraudulent activities at Enron were sentenced to prison.
