Enron’s failure analysis

Enron was an American energy company based in Houston, Texas. During the year 2,000 it was said to be one the most innovative companies in the US. In this year the company claimed revenues of $111 billions, and employed around 22,000 people. The economic growth of the company was so aggressive that millions of investors and employees invested heavily into the corporation’s stock. However, a company that began in 1,931 as Northern Natural Gas Co. would have a tragic ending at the end of 2,001. What made a healthy corporation like the giant Enron fail so quickly?

Some of the reason about Enron’s failure was in most part due to the people running the organization. It was not a numerical failure. As the video explained, “People think it is about money. It is a human tragedy”. Truly indeed, the problem with Enron was, like a plant that is rotten from root to leaves, the company suffered from corruption and unethical behavior at all levels. Enron utilized a traditional approach to strategic control, because the strategies were formulated at the top, implemented, and measured against predetermined goal sets. Jeffrey Skilling had brilliant ideas about modifying the trading system and company operations. The problem was that he took excessive risk in implementing it. The sole purpose of the company was to transform Enron into a wild beast that could generate huge amounts of profits. So, the motivation of employees at all levels was about making profits for the corporation. Jeffrey Skilling, CEO of Enron, could not have achieved these maquiavelic strategies without the approval of Kenneth Lay, chairman of the board of directors, who knew everything that was happened in the corporation. In order to make this transformation, Enron leaders created a corporate culture. In this process, Jeffrey Skilling and its top executives would travel to have wild adventures like mountain biking, and other kinds of aggressive games to make sure everyone was tune with the new culture. As Skilling said, “We love risk, because risk of how we make money”.

There were not boundaries at Enron; everyone was focused on achieving huge amounts of profits for the corporation no matter what. Thus, traders would negotiate and make deals without ethical principles. At the end Enron will reward top executives that accomplished such missions. For example, One of Enron’s top executives would please the boss by hiding $30 million in debt of Enron. He accomplished so by creating a complex structure of business with sole purpose of doing business with Enron. On the other end, Jeffrey would start a very aggressive downsizing by firing 15% of people every year.

Corporate governance was complete failure. The chairman of the board of directors was corrupt, so there was no way of stopping what ultimately hurt to dead Enron. Enron executives played with the grid of corporate America by applying a complex psychological control over everyone in the system. They enforce the belief that Enron was doing great, so investors would keep dropping money into the market. Also, they created artificial energy shortages in California to pushed energy prices to the roof. At the end, such techniques became obvious and Enron fraud was discovered.

Jeffrey Skilling set a direction for Enron; he wanted Enron to be the leader in the energy industry. He made everyone aware of such plan, and successfully implemented it. The problem was he nurtured an organization with lack of moral values and left only the message that end justify the means. At the end, the traders, which became the engine of Enron, at the end turned to be the hit man that turned its weapons against its own boss; in this case Enron. Why? Because Jeffrey Skilling and Kenneth Lay encouraged thy reckless conduct and let them gamble Enron’s profit. In the video this problem was explained in the following way, “Borgett manipulated profits… Traders weren’t fired. Instead, traders were encouraged to gamble more. Thus, gamblers recklessly loose all Enron’s profits”.

At the end, Enron’s tragedy not only affected the market, but left in investor’s mouths the bitter flavor of mistrust and losses. Once Enron declared bankruptcy 20,000 employees lost its jobs, $1.2 billion lost from retirement funds, and $2 billion lost from pension funds. There was not justification for top leader’s behavior than greed, selfishness, and ego. The only good thing to rescue from this tragedy would be to regulate the industry better in order to avoid such problems to occur in the future.