Term Paper on "Enron Dubbed"

Term Paper 15 pages (4381 words) Sources: 1+

[EXCERPT] . . . .

Enron

Dubbed as one of the most celebrated cases in contemporary business cataclysm in the U.S., the scandal shadowing the collapse of Enron have brought forth economic devastation to the American commerce during a time of economic boom in the late nineties towards the new millennium. Many have been wondering about the reasons that lead to the demise of one of the most successful companies in terms of revenues and stratagem.

For six straight years, Enron have been regarded by several business critics including Fortune magazine top billing Enron as "America's Most Innovative Company" from 1996 to 2001. The bankruptcy of Enron has greatly affected and gave a dent to striving economy in the midst of December 2001. With the company's attempt to conceal reports of losses, the company's predicament was later on revealed to the public that Enron have intentionally failed to disclose profit losses by utilizing un-accepted accounting methods and strategies based on the U.S. conventional accounting procedures. The fraudulent accounting of Enron's financial status was hidden by means of sustaining its reported fiscal condition through systematic camouflage and creative accounting methods. Relatively, controls over the auditing of the company's financial standing either internal or external have failed to detect the gradual decline of its profits with the disguising of financial losses for several years. With the revelation of this accounting schemes have directed the dissolution of the Arthur Andersen accounting firm, one of the top five accounting firms in the U.S.

However, the company's misfortune have not affected the luxurious lives of Enron's top managers who early on to the dwindling of Enron's stocks have managed to escape with million of dollars by selling their stocks even before its prices crashed down.

The faith of the Enron's employees was not as that lucky compared to their devious managers. With the collapse of Enron many lost their jobs including most of their entire savings and retirement fund which were all invested in Enron's stocks.

The collapse of Enron has revealed other important issues that have greatly affected both the economic and political atmosphere in the U.S. From the company's rise to economic glory to its downfall several events overshadowing Enron's bankruptcies that are still being taken up in courts until this day.

COMPANY HISTORY

Enron was established and found its roots with the merger of two natural gas companies, Northern Natural Gas Co. And Houston Natural Gas Company in 1986. Enron's corporate headquarters is based in Houston Texas which was formerly based in Omaha.

Trivia: Initially, the company was to be named Enteron, but when it was pointed out that the term approximated a word referring to the intestine, it was quickly shortened to Enron" (Wikipedia Encyclopedia, 2005)

With the efforts of the federal government to deregulate both the industry of natural gas and electricity emerged Enron's advantage in gaining controls most of its market both in the U.S. And over seas. The creation of Enron was intended mostly for the purpose of dominating the first U.S. wide natural gas pipeline. And so it did, with its newly appointed CEO former CEO of Houston Natural Gas, Enron took great advantage of the energy deregulation and catapulted the company to great heights. Enron engaged itself to nationwide distribution being a power player in the industry of energy and natural gas.

Expanding its horizons, Enron not only became a provider of natural gas but also served as a middleman for energy bringing together buyers and sellers of energy. Enron dominated the trading of energy contracts and financial instruments known as derivatives (MSN Encarta, 2006)."

The company also diversified its service portfolio not only in the U.S. But in other countries as well. During its corporate evolution, Enron became a major provider of electricity and gas involving itself to the overall growth and improvement of the company starting from the conceptualization of plans, construction of infrastructure and operations of power plants and pipelines covering the U.S. And also other infrastructure in other countries.

Partnering with other companies at par with its class, Enron also engaged in other ventures such as oil well exploration and operations with then CEO of Spectrum, present U.S. president George W. Bush. The company also entered in water distribution and maintenance creating Azure Corp in 1998 to 1999 but later on was losing money due to incapability to penetrate the required market share. Azure was later on announced to be liquidated and sell its assets in the early stages of Enron's collapse. Enron traded products in the market that would include petrochemicals, plastics, principal investments, pulp and paper, risk management for different commodities, shipping, steel and streaming media.

The company also continued to invest in physical facilities. Enron bought into utilities in Brazil, India, and the United Kingdom. All of this required billions of dollars, which were raised from investors or borrowed from lenders. By 2000 Enron had 21,000 employees and $100 billion in revenue" (MSN Encarta, 2006).

During its glory days, hailed as an inspiration to new market players, Enron fully diversified its portfolio with its other ventures such as the marketing and promotion of power and trading derivatives in the world market. Among its other major citations,

Enron was named by Fortune Magazine as "America's Most Innovative Company" for six straight years, starting from 1996 to 2001. Enron was also hailed by Fortune Magazine's list of the Top 100 Best Companies to Work For in the U.S. " (Wikipedia Online)

Fortune 500 article published in April, 2002 (six months after Enron filed for bankruptcy filing) moved Enron from the 6th to the 5th spot, estimating the company would gross $138 Billion" (Corporate Narc)

Before the exposure of the corporate fraud of Enron to the public, different sectors of labor and other workforce praised the company's policies and benefits it gives to its employees and workers. Long-term pension plans and other benefits have put Enron's employees to a much greater advantage compared to employees of other companies up until 2001.

Prospecting a new range of market during the entry of the new millennium, by November 1999, Enron launched its website, Enron Online, which traded commodities and products in the world market via cyberspace. This new venue allowed customers to buy, sell and trade which gave Enron an edge and eventually as a source of revenue for survival. By August of 2000 the price of Enron's stocks reached its peak at $90.00 per share. During this time, the company have been experiencing the early stages of financial difficulties due to losses attained from Enron's other ventures.

ENRON'S DECLINE

With serious allegations of bribery, use of political influence and pressure to gain favors and contracts all over the globe, Enron started to dwindle its remaining last days of glory. Its reputation started to tarnish amidst the different controversies the company is facing. Enron was accused of using connections to exert pressure in the Clinton and Bush administration in gaining controversial billion dollar contracts in the U.S. And other countries.

Enron pursued a business strategy that exploited relationships with elected officials and regulators to pursue policies narrowly tailored to benefit Enron's immediate income needs. Enron purchased these alliances through aggressive financing of election campaigns and spearheaded a national crusade to de-regulate energy markets. It is important that Enron spent $3.45 million in lobbying expenses in 1999 and 2000 to deregulate the trading of energy futures, among other issues that were thrown at Enron during the early stages of its collapse." (Blind Faith, 2001).

The company's interest lies on countries within Central America, South America, Africa, India and the Philippines.

The climax of its steady decline broke in the news on November 2001 with allegations that Enron is camouflaging the true status of its finances by altering results on its financial statement. The company allegedly was using un-acceptable practice and fraudulent methods of accounting. This consequences lead to the filing of bankruptcy of Enron on December 02, 2001.

With the revelation of the Enron Scandal, the value of Enron stocks dwindled to an unprecedented drop from $90.00 per share to $.30 being the one worst case recorded in the financial world. Enron shares were considered as a blue chip stock with most of its shares belonging to its employees and the general public. Adding insult to injury, top management already informed by internal information through insider trading that the stocks are pressing down to its worst level, they were still able to sell their shares gaining favorable amounts of money months before the announcement of bankruptcy by Enron. However, insider information provided false information to the public that the current decline of the Enron Stocks are only temporary and will then rebound to a possible range of $120 to $140 per share. This information mislead the public by buying more stocks which were eventually from shares of top management having hold of the insider information about the hidden losses. Enron's stocks had a gradual decline from August 15, 2001 from 90$ falling to $42. By October stocks came to a… READ MORE

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