A highly praised by outside observers and most respected company in the US shocked many when it went under. This essay will give a description of the downfall of the company from a utilitarian approach.
Enron was closely managed in such a manner that one could not easily understand its operations. Poor management by the top executives and managers coupled with lack of corporate culture, transparency and accountability led to Enron’s collapse (Kurdina, 2011).
Formed in 1985, Enron was involved in the business of transporting regulated gas but later shifted to unregulated energy trading. The company “thought” that they had enough money to buy and sell energy financial contacts than the ownership of physical assets. Until august 2001, the company had an “outstanding financial success” or many observers thought so; its accounts showed that annual revenue grew from $10 billion in early 1990s to $101 billion in 2001. When the then CEO resigned in August 2001 and a subsequent quarterly loss realized in 4 years of $618 million against a profit of $292 a year earlier, the unraveling had began. The Enron collapse involves several controversial issues that need be looked at. By using a mark to market accounting, the then CEO Jeffrey Skilling used to hide the financial losses of the company (Jickling, 2002).
The company was also rumored to use its links to the Bush administration to express pressure on its contracts. This opened up to a series of scandals that included irregular accounting methods. Enron’s considerable fair of its profits were later discovered to result from ‘the special purpose entities’ which had limited partnership under its control. The final downfall resulted when the company re-organized three more businesses which later resulted to fall of the company. The Enron Company had an operations management which had a mandate outside its scope and as a result the quality of their performance and its overall corporate culture created in the company was so poor. The operations management failed to advance or provide ‘positive control environment’. This department did not help the company in its ethical values, philosophy of management nor in its integrity (Kurdina, 2011).
On the management level, collective and individual greed coupled with corporate arrogance also contributed to its collapse. As the company’s reputation grew globally, its internal culture continued to worsen. The CEO of the company founded RICE (respect, integrity, communication and excellence) which gave forth to profit posting and thus achieve top rating. This increased fierce internal competition as about 15 percent of the workforces were replaced annually for not “working hard’. This resulted to a short-term increase of paranoia in the company and as a result many of the contracts that were signed were done in a huff and without much consideration as to whether they followed the company’s rules and regulation or whether they conformed to its strategic plan. As a result of this poor corporate performance and poor operations management, Enron collapsed (Kurdina, 2011).
The case of Enron collapse should be taken as wake up call for relevant authorities to take stiff measure and ensure that the public is not deceived by scrupulous management as was the case of Enron. Prior to its collapse, it was among the leading companies and most admired companies in then US. Enron collapse happened because the company’s top management was driven by greed, foolishness and arrogance and as a result the company suffered big losses. The managers lacked responsibility due to absence of corporate culture and transparency within the company. Most of the losses that happened could have been avoided if the management had the willingness to put a stop to it.
Jickling, M. (2002). The Enron collapse: an overview of financial issues. State Government. Web.
Kurdina, A. (2011). The Collapse of Enron: Managerial Aspects. Ezine Articles. Web.