Essay About Enron Collapse And Enrons Mission

Enron Case Study
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The Enron Collapse
By: Jeff Porter
Kevin Clark
Jared Sabelhaus
February 18, 2005
Introduction
Companies have mission statements that often read like inspirational leaflets.
Enrons mission was at first to be the worlds greatest energy company then later revised
in early 2001 to be the “worlds greatest company”. In the late 1990s, Enron seemed to
have accomplished their mission accumulating vast amounts of assets, had the
intellectually elite at the helm, a political climate in their favor and numerous
opportunities to expand. Enron gave all appearances of a vastly superior company that
could do no wrong. The thing about king of the mountain is that the ones on top never
seem to stay there for very long and in Enrons case the fall from corporate mountain was
spectacular and felt all over the world. Over the course of three short years Enron went
from the seventh largest company in the U.S. to financial ruin. However deep and
impressive their intelligent managerial pool was; internal flaws led to a slide of epic
standards. In our report, we will analyze these internal flaws that include inadequate
control measures, a hostile environment and flawed accounting and financing methods.
Because of the financial severity which the company was in we concluded that Filing
Chapter 11 bankruptcy was the only option for Enron and therefore will be assumed in
our report. When we asked Rich Kidwell if there was anything Enron could have done to
keep from filing Chapter 11 he said “I dont know if there was anything that they could
do. Enron was like a house of cards and it was only a matter of time before they were
blown down.” We examined different ideas on how to transform these flaws and then
suggest which idea we feel is best suited to the needs of this company.
Assumptions
While writing this paper we assumed the following points:
* Enron has already filed for Chapter 11 bankruptcy.
* Enron is unique in regards to size and operations (accounting methods and
actions) compared to other regulated commodity companies.
* Due to Enrons aggressive accounting we understand the financial ratios that are
computed using Enrons financial statements are more than likely not going to
give an accurate or clear picture of the companys current status.
Brief History
* 1985- Enron is formed by merger of Houston Natural Gas and InterNorth
creating the largest company owned natural gas pipeline.
* 1989- Enron opens its Gas Bank, where consumers can buy long-term
supplies of natural gas at a fixed price, setting the stage to become a
commodity trading company.
* 1990-1998- Enron expands its holdings in the U.K., Europe, South
America, and India. Enron in this time moved away from natural gas and
pipeline operations instead focusing more on marketing other energyrelated
commodities.
* 1999- Enron launches its broadband services and Enron Online.
* August 2000- Enrons share price reaches an all time high of $90, ranking
it the seventh largest energy company in the world.
* October 2001- Enron post its first quarterly loss in four years, $618
million and a reduction in shareholder equity by over $1 billion dollars.
* December 2, 2001- Enron files for bankruptcy protection.
S.W.O.T. Analysis
Strengths
Enron is the largest company-owned natural gas pipeline system in the United
States and is ranked seventh on the Fortune 500 giving it an established name with
credibility. Another strength of the company would be its reputation and public
perception. Enron has a competitive and almost monopolistic advantage over its
competitors because they are the largest energy provider. They also have market-making
abilities that result in price and service advantages (26).
Weaknesses
It is easy to target Enrons weaknesses in the company. They have a lack of
ethical and moral behavior among employees and auditors by engaging in deceitful and
wrongful acts. Management has a lack of control and conflicts of interest occur in
numerous transactions. The culture of Enron was all about results therefore, expectations
of financial statements were high and employees were told to make up for losses.
Opportunities
Name recognition is an opportunity for Enron. Society recognizes Enron as a high
quality energy provider. There are many opportunities for Enron to expand or use to their
advantage the many assets they have such as pipeline. Deregulation of the energy
industry in the 1970s allowed Enron the opportunity to grow