Enron Corporation
Introduction
Enron Corporation was a company that was established with the main aim being the provision of services in the communication and energy sectors. When the company was established, it was doing very well having provided employment to about 20,000 and providing its services to many parts of the world. As a matter of fact, the company had been ranked top for six times consecutively by Fortune as being the most innovative company in the whole of America. However, in the year 2001, the company filed for bankruptcy after it was established that the company had been involved in various fraudulent deals. It was established that the seemingly good performance that the company had managed to maintain for many years was a result of well calculated, systematic and institutionalized fraud in the accounts of the company and this came to be known as the Enron scandal. This discussion focuses at the Enron Company, its operations, activities, employees, agents and its structure. The discussion will further delve into finding out what ought to have been done differently especially in terms of structure to prevent the company from sinking as it did.
History of the Company
The company was established in the year 1932 but under the name Northern Natural Gas Company whose base was in Omaha. The company was later restructured in 1979 as a subsidiary of another holding company dealing with various products in the energy sector. Around 1990, the company broke away from the main company and was renamed Enron a company that was specializing mainly in petroleum products. During this time, the company was headed by Jeff Skilling as its Financial Chief Executive Officer. Jeff brought on board Fastow who had a good understanding of how the energy market operated and the fact that pretty much of the operations of the energy market were unregulated a factor that Jeff was very keen to take advantage of. The first thing that Fastow did upon being brought on board was to establish special purpose entities tat had limited liabilities whose main aim was to ensure that Enron as a company did not feature in the accounts of the company.
Initially, the main business of the company involved the transmission and distribution of natural gas and electricity in the whole of America. Over time, the company managed to come up with pipelines and power plants and the pipeline for the transportation of natural gas owned by this company was one of the largest in the world at the time. The pipeline is estimated to have stretched almost across the whole world with the company forming partnership with other multinationals in various parts of the world.
In the year 1998, Enron shifted gears and made some investments in the sector of water thus setting up Azurix Corporation which was listed in part on the stock exchange of New York. Unfortunately, the performance of Azurix in the water sector was not as good as expected as the penetration was very poor and pretty much of the money that had been invested was lost. When the company broke away from its holding company back in the 90s there had begun speculations that Enron was heavily in debts claims that were constantly suppressed by the management.
Despite the flop in performance of Azurix Corporation which was a subsidiary of Enron, the parent company continued to do quite well through promotion and marketing of its services. The offices that housed this company spoke volumes of the success that was associated with Enron. Having been listed six times following as the most innovative company in the entire American region and having appeared in the top 100 companies as listed by Fortune, there was no doubt that the company was riding high in terms of performance and profit margins. Enron had become a force to reckon with every person including job seekers hope to secure a place in the company due to the goodies that its employees were getting. The management was also said to be highly effective until other shocking discoveries were made later in the year 2001.
Daniel Scotto was the first financial analysts to raise a red flag regarding the fraudulent dealings that had been going on in Enron for many years (Fox, 2003, p. 654). Daniel tabled a report that was meant to make all the people who had invested with Enron to sell all their bonds and stocks even if it was at a loss giving the impression that the company was going to collapse soon.
With this alarm that was raised by David Scott, other analysts swung into action and began investigating the claims that had been made by Scott some of which were quite alarming. Indeed, where there is smoke, there is fire. True to Scott’s claims the analysts found that most of the profits and assets recorded as having been property of the company were just but merely inflated figures some of which had been quoted way above the actual figure while others were not in existence at all. Any loss or debt that the company had incurred at any point during its operations was never reflected in the financial records of the company. In addition, financial analysis discovered that Enron had also been involved in fraudulent deals with other companies that were in a similar line of business but the fraudulent transactions had been committed in such a sophisticated manner that it was not easy for any ordinary person to detect. Any entity that did bring profit to the company did not appear in the record of the company (Fox, 2003, p.876). It is after these discoveries that the company filed for bankruptcy and was liquidated in the year 2001. The original company Northern Natural Gas repurchased the company whose base had remained in Omaha.
If Enron had been structured in such a manner that any key decision involved every key manager in the company as opposed to the top managers only, the issue of fraud would not have occurred (Sterling, 2002, p. 76). Another major issue is the fact that being a private company, Enron would hire and pay its auditors. This meant that these auditors were subject to manipulation by the top management of the company.
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