Fall of Enron
1. Why was Enron such an admired company prior to 2000? What innovation do they bring to the table? Be specific and support your statement with concrete information.
Prior to the year 2000, Enron Company, established in the mid-80s, caused the admiration worldwide because of its fast rise of revenue both in the local and international stock market in a short period of time. Enron’s operating income in the year 2000 was stated in $100.7 billion and its after-tax net income was reported in $979 million (Palepu & Healy, 2013). The enterprise’s business model was based on energy-trading, centered in the deregulated energy marketplace, and in its significant investments in several large-scale commodities and other broad …show more content…
This led them to sort to diverse unethical approaches such as employing newly managers with luxurious, disproportionate compensations and attractive signing bonuses as incentives in order to help the companies’ traders remain one step forward of the competitors in trading tactics (Palepu & Healy, 2013).
Enron had conflict of interests’ issues that also caused its failure, noticeable when such organization appointed Arthur Andersen as an external and internal auditing firm as well as consulting entity to the company (Thomas, 2002). It also had supposed implications of US government as noticeable by their near affiliation of Enron’s Chairman to the White House (Thomas, 2002). This overconfidence to safeguard their prestige, drove them to another cause of downfall. In the ethical atmosphere, Enron puts an interrogation on the reliability, integrity, and moral trustworthiness of the organization.
3. What was the major change in regulation after the fall of Enron, and what were the legal consequences for the key players involved?
The major change in regulation after the fall of Enron was the passing of the Sarbanes-Oxley Act, by the U.S. Congress in 2002 in order to