Enron Case Answer
Answer 1. Who were the key stakeholders involved in, or affected by, the collapse of Enron? How and to what degree were they hurt or helped by the actions of Enron management?
Outline: Key stakeholders involved or affected by the collapse of Enron How were the key stakeholders hurt or helped by the actions of Enron management The degree of Enron management actions’ hurt or helps to the key stakeholders The key stakeholders involved or affected by the collapse of Enron were thousands of employees and retirees who lost their jobs and the investment; Banks-J.
1. Morgan Chase and Citigroup who lost billions in market value and faced major write-downs on bad loans; Shareholders and Mutual fund investors; Governmental figures-Bush family; Regulatory Authorities-FERC, SEC and CFC.
The actions of Enron management were extending the business model into other commodities to keep the company’s stock price and profits growing which helped shareholders, using political strategy to promote deregulation and reducing government oversight on company’s trading by donating large money to the political parties which helped Governmental Figures, using a “rank and yank” system to make the employees afraid of questioning the company’s unethical and potentially illegal business practices which hurt the employees, using executive compensation and reward systems to tied performance without ethical and oversight which caused employees to do whatever it took to make the accounting numbers look good which is unethical to the employees, using “asset light” strategy to maintain company an investment-grade credit which hurts the banks, entering into series of increasing complex financial transactions with SPEs to conceal company’s large debt which hurt the stakeholders’ right to know the truth and using Mark-to-Market, Sham swaps and Prudency accounting strategy to manipulating revenue which hurt the stakeholders a lot.
2. Considering all aspects of the case, what factor of factors do you believe most contributed to the collapse of Enron? In your answer, please consider both external and internal factors. Outline The factors that contributed to the collapse of Enron Internal factors External factors
In my opinion, Enron’s strategy was an important factor that contributed to the company’s collapse. It was basically where the company’s problems began. The internal factors are the company’s corporate culture, compensation and rewards systems that fostered an unquestionable environment. External factors are corporate governance, fraudulent accounting to manipulate the revenues, and the ability for Enron to influence politics and deregulation.
3. What steps should be taken now by corporate managers, stakeholders, and policy makers to prevent a similar event from occurring in the future? Outline Steps by corporate managers Steps by stakeholders Steps by policy makers
From now on, the corporate managers should take the steps of considering more ethical ways of achieving its objectives, realizing they are personally responsible for the validity of the financial statements, lowering compensation to board members and creating professional relationships among the company’s board, upper management and external corporate governance agents. Stakeholders should take the steps of increasing their oversight of the company’s operations and establishing an ethic committee. Policy makers should take the steps of establishing a specific agency to regulate these contributions made by business corporations and making laws that external auditors must report any illegal or unethical accounting practices included in a company’s financial statements to the SEC.
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