Enron began its journey in the business world all well, and everyone involved was happy with the progress. However, things started changing the moment that new officials were brought into place. After Houston Natural Gas and InterNorth companies had merged, the initial leaders ensured that the employees delivered their jobs effectively. However, it all went south when Segnar took over as the chairman. The corporate culture introduced after these changes were the beginning of Enron’s demise. However, this was not the only thing that brought the company down. Other contributors like the auditors, lawyers, and bankers also ensured the failure became a reality. To top it up, the White House was also part of the recipients of the money that resulted from the scandal. This paper aims to describe and discuss all the leading factors that led Enron to bankruptcy. The main factors addressed include the corporate culture, the Chief Financial Officer, lawyers, auditors, and bankers.
Keywords: Bankruptcy, Security and Exchange Commission, Financial Scandal
Questionable Accounting Leads To Collapse
How Corporate Culture Led to Enron’s Bankruptcy
Aggressive and arrogance best describes the business tactics used by Enron and nurtured by its corporate culture. However, its beginning is a whole different story. Enron was made by consolidating two separate organizations in a merger, the Houston Natural gas and InterNorth Company back in the 1980s. At this stage, the culture of Enron was very different from what was seen later. The chairman, Willis Straus, was the employees’ favorite leader and that could be seen from the love he received. He would converse and share ideas with all employees during breaks, which made their relationship even stronger. After his retirement, Straus nominated Sam Segnar to succeed him in that office. However, this is where things started to take a U-turn because Segnar was the employees’ favorite. His arrogance and pride pushed everyone around him away which made it difficult to govern the company. The effectiveness of the workers is always dependent on how they are treated and appreciated.
The governing bodies from the two merged companies consolidated and formed one board of directors. Kenneth Lay was given the chairmanship of the, and he was active at it. However, again things changed for the worst when the new chairman, Jeff Skilling, took over. Skilling introduced a new culture whereby employees were reviewed after every half a year. The “rank and yank system” as it is called demanded that those employees who will be ranked among the bottom 20% would lose their jobs. Although the intentions from Skilling were good, the repercussions did not do any good for the company. Instead of focusing on the primary goal, the employees started competing against one another. The system also made the employees cover up crucial issues instead of reporting them to the management. As such, things that would have been prevented in advance were left until they were at a critical stage. The corporate culture that had been bred by the two leaders as mentioned earlier was one that punished the weak instead of supporting them to get to their best. Even those who were good at their work focused on becoming the best instead of ensuring that the goals of the company are met. In the end, the culture that was meant to build Enron ended up killing it.
The contribution of the Bankers, Auditors, and Attorneys to Enron’s Failure
The auditors, attorneys, and bankers also had a role in the demise of Enron. Enron’s auditor, Arthur Anderson, was given the responsibility of ensuring that all the financial reports presented were accurate enough. Investors judged the current performance and the future of Enron by analyzing these reports. Anderson delegated more than 100 employees to Enron’s account because the company was one of the biggest business partners. However, Enron charged high consulting fees, and this is believed to be the main reason why Anderson was forced to certify false records. Anderson’s lawyer, for instance, ensured that all the documents regarding Enron’s finances just a few days before there was a reported loss of $618 million. It is proof enough that something was wrong somewhere and the auditing company was to blame.
The bankers should also shoulder their share of the blame since they also contributed to this mess. The fuzzy accounting was the bankers’ making and this aided financial deceit, and in the long run, Enron suffered. Reports suggest that the bankers got rid of an analyst whose research results made the executives quite unhappy. It shows that the analyst was on the verge of uncovering something significant and the bankers were not pleased with his progress.
The lawyers were also not left behind in this scandal as they dismissed potentially important information presented to them. Sherron Watkin’s had found something from her analysis, and as she reported to the lawyers, no one wanted to listen to what she had to say. Also, most of Enron’s deals were signed off by a lawyer who would then approve any money transfer from the company. Therefore, if any of the agreements were not in line with the company policies, then the lawyers are to blame for not playing their role and stopping the transaction until further investigations are done. An example, Vinson & Elkin paid Enron $30 million without admitting that they had done anything wrong, which means that something had been done in the dark.
The Role of the Company’s CFO in Enron’s Financial Issues
The idea of having a management-incentive system did not help Enron’s financial stability. Innovations were rewarded with high bonuses and payouts, which was not the case for those holding current products. Enron nurtured and supported the destructive business culture without knowing. Twelve-months before the scandal was reported, the top executives at Enron received about seven million dollars per head, which was beyond what the profits of the company could support. The same executives remained in office, and others were promoted, which meant that the erroneous salaries would continue hurting the company’s economy. Those executives that were not lucky to move from one office to the other created loopholes to ensure that they continued earning a fortune.
Enron’s directorate fundamentally looked the other way while the false and deceitful money transfers were occurring. After neglecting to act as per corporate administration, no charges were brought against the board anyway that does not make them blame for the collapse. The governing later admitted that they were not sure about the transactions on which they had signed off. The lack of enough investigators in the Security and Exchange Commission helped the deceitful course of Enron. It was also compounded by the failure of public watchdogs to oversee the operations of the company which meant that the leaders would continue acting as they pleased.
Although most of the blame is put on the leaders of the company, there is a chance that the government officials also played a role in Enron’s bankruptcy. Politicians and government officials took advantage of Enron’s situation to make their selves rich. They received money from Enron and did whatever was asked of them. President Bush’s office was reported as one of the recipients of Enron’s funds. The cabinet at that the time was full of former Enron advisors, consultants, and lawyers. As such, Enron had direct access to the highest office on land.
Enron is an example of how business should never be conducted. It had the help of all the offices within the company and also the White House, but the help as towards its bankruptcy. Every official and employee within any business should always look after the well-being of the company, but this was not the case with Enron. Everyone involved used the situation as a chance to get rich.
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