Enron Case Study
Enron, a corporation used to have more than 3000 subsidiary companies and control 20% of the United Stated electric energy and natural gas transactions, declared bankrupt in 2001. Enron was founded in 1930, Houston, the US. It was one of the biggest energy companies in the world and it is on the 16th of Fortune 500 companies in 2000. However, what makes it really famous is that a company holds billons of US dollars bankrupt in a few weeks with well-planned financial fraud scandals which last several years by its Chairman and CEO Kenneth L. Lay. From that time, Enron becomes a name or symbol of corporation fraud and corruption. The irony is that Enron Corporation was rated as “the most innovative company of the US” and “the best 100 companies to work for” by Fortune Magazine in 2000. From this we can find that there must have tons of unknown aspects about the managerial behavior inside the Enron. As expected, the profits reported by Enron financial statement were unreal and bombastic. Enron uses a series of dazzling financial related transactions to cover the loss. Furthermore, an example from the movie “The smartest guy in the room”: Enron put pressure on the India government on a 3 billion contract with an electric company in India by the former president of the US Bill Clinton and George W. Bush. For the management behavior of Enron, we may find that Enron hired many newbie which are unfamiliar with the energy company to manage the company; this makes Enron becoming a business company without credits rather than an energy company.
To determine the Enron corporate scandal, we mainly focus on these several parts. The first one is the fraud. Enron keep reporting that the corporation is working smoothly and their business is on good condition. These reports mislead the investors investment direction and make them keep throwing their money to Enron. Just a several months before Enron bankrupt, their CEO Kenneth L. Lay was still advocate the company is in good situation while the truth is the whole Enron corporation include most of their subsidiaries are basically empty and the financial obligations ratio is incredibly high. Another possible culprit was the accounting manipulation. The management of Enron made a set of complicated financial structures for their company. The goal is using these structures to create fictitious profits of an enterprise and hide their debt. These structures or techniques are so hard that even the analysts in Wall Street or Accounting Professors still cant understand. For example, Enron uses an accounting system called “mark-to-market”, this system allows Enron and some other energy company increase their net income on income statement while these income or contracts cant even realize in over 10 years. In other words, it is a technique overdraft the future income of Enron although these incomes maybe cannot come true at all. Furthermore, Enron find some