Its collapse shook the markets and nearly crippled the energy industry.
Tutorial Enron Case Study Seven years after the fact, the story of the meteoric rise and subsequent fall of the Enron Corporation continues to capture the imagination of the general public.
What really happened with Enron? The broad purpose of this paper is to investigate the Enron scandal from a variety perspectives. The paper begins with a narrative of the rise and fall of Enron as the seventh largest company in the United States and the sixth largest energy company in the world.
The third and final part of the paper examines the policy responses to the Enron scandal. It is hoped that via the application of these two policy theories, future policy makers will gain a better appreciation for how and why policy is created as well as the overall effect policy has on governance issues within the private and public sectors.
In the initial years, Enron attempted to function as a traditional natural gas firm situated in a competitive, yet regulated energy economy Free, Macintosh, Stein,p. Due to its tremendous debt and early losses on oil futures, however, the company had to fight off a hostile takeover and its stock did little to impress to the traders on Wall Street p.
Fortunately for Enron, things began to change in American governmental policy with respect to the way the natural gas industry operated. Enron capitalized on the governmental deregulation of the natural gas market by providing consumers with greater access to natural gas via their nationwide pipeline system.
Due to deregulation, as supplies increased and the price for natural gas fell by over 50 percent from toEnron was able to charge other firms for using their pipelines to transport gas. Around this time, Jeffrey Skilling, an up and comer working for the consulting firm McKinsey and Company, began working with Enron.
Beginning inSkilling started his work in creating a forward market for Enron in the deregulated natural gas sector. Skilling spotted an opportunity to develop new markets. By introducing forward markets, individuals could acquire information and knowledge about the future and express their own expectations by either buying or selling forward p.
This allowed Enron to trade around congestion points and helped them to exploit their knowledge of the surplus or deficit in pipeline capacity. According to the asset light strategy, Enron would, Begin with a relatively small capital expenditure that was used to acquire portions of assets and establish a presence in the physical market.
This allowed Enron to learn the operational features of the market and to collect information about factors that might affect market price dynamics. Although Enron attempted on numerous occasions to repeat their financial successes in other markets such as water and broadband, they were never able establish the comparative advantage they initially held in the deregulated, natural gas sector Culp and Hanke, p.
Political Connections Once established as a major player in the natural gas market, Enron began utilizing its resources to exert its influence on U.
For example, Kenneth Lay was one of George W. Lay, himself, was given veto power over the important position of chairman of the FERC as well as a prominent position within the highly secretive, Cheney-led Energy Task Force early on in the Bush presidency p.
When, for example, it became apparent that Lay did not agree with the chairman of the FERC on key energy issues directly impacting Enron, Lay asked that the chairman change his views or run the risk of being replaced.
Lay recommended them to Vice-President Cheney. One of them, Pat Wood, was appointed to the post of chairman of the FERC on September 1,a position he held until his resignation in Gutman,p.
The two men traveled to India to oversee the signing of the loan agreement by the Dabhol Power Company with the U. In the end, the Dabhol Project turned out to be a financial disaster, both for Enron and the Indian Maharashtra state in which it was located McLean and Elkind,pp. This, however, did little to deter Enron and its political game playing as evidenced by the continual lobbying pressure they placed on U.
The Fall of Enron In a way, Enron went bankrupt for the same general reason that all companies go bankrupt: This does little, however, to explain the specific reasons why Enron became the largest company to file for bankruptcy in U. What eventually brought Enron to its knees was the incompatibility of two competing ideological systems relating to how Enron was to operate as a company and make its money.
Each employed a different strategy for doing business. Skilling was a proponent of the asset light strategy discussed earlier.
Mark, on the other hand, was a firm believer in the philosophy of asset rich, or heavy, infrastructure development in areas such as energy, water, and telecommunications. As President of Enron International EIMark pursued a business strategy that involved the acquisition or development of capital-intensive and high-debt projects such as the Dabhol Power Plant Niskanen,p.
Mark continued to advance her position and asset rich strategy within the company, investing heavily in overseas projects like the Dabhol Plant in India and the Azurix operations in Argentina, Canada, and Britain.
Unfortunately for Mark, however, many of these projects never resulted in the accrual of long-term profits for Enron.Download thesis statement on Analysis and Reaction regarding the Enron Case in our database or order an original thesis paper that will be written by one of .
An Ethical Analysis of the Enron Scandal. bank employees. Olympus Case Study Reaction Paper. Coporate Governance. MUMBAKI1. Magnificence by Estrella D Alfon was an actual accounting company by the name of Arthur Andersen. an appeals court reviewed Skilling’s particular case regarding Enron and has reduced the previously.
May 14, · And while Enron won't be the last case of corporate malfeasance, its tumultuous tale did initiate a new age in business ethics. Enron, once a sleepy natural gas . (), the drop of Enron's stock price from $90 per share in mid to less than $1 per share at the end of , caused shareholders to lose nearly $11 billion.
And Enron revised its financial statement for the previous five years and found that there was $million in losses.
Enron fall to bankruptcy on December 2, Download thesis statement on Analysis and Reaction regarding the Enron Case in our database or order an original thesis paper that will be written by one of .
Enron was one of the biggest and, it was thought, one of the most financially sound companies in the U.S. Enron, located in Houston, Texas, was considered one of a new breed of American companies that participated in a variety of ventures related to energy.