Muhammad Shoaib Farooq

sshoaibfarooq2@yahoo.com www.shoaibfarooq.co.cc

2010-09-21

Intro
Enron was founded in Omaha, Nebraska in 1985 with the merger of Houston Natural Gas and Internorth. The company headquarters were originally in Omaha but moved to Houston by Kenneth Lay, the new CEO of Enron. Enron was one of the worlds leading electricity, natural gas, pulp and paper, and communication companies. Originally Enron was involved in transmitting and distributing electricity and natural gas through the U.S. then as the company developed they built and operated power plants and pipelines. Enrons wealth grew due to its marketing and its high stock prices. In August 2000 the value of the stock hit its all time high of $90. From1996 to 2001 they were named Americas Most Innovative Company by Fortune magazine as well as 100 Best Companies to Work for in America in 2001. By Aug. 2001 the stock prices fell to $42 and continued to fall and in Oct. it closed at $15 a stock. Then in Dec. 2001 Enron filed for bankruptcy.

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Early History: Domestic Markets

By 1994 Enron became the largest seller of electricity in the United States In 1997 Zond Corporation became subsidiary of newly formed Enron Renewable Energy Corporation May 2000, Enron and its new investors, IBM and America Online, launched the New Power Company

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The Enron Scandal: One of the largest bankruptcies in United States history

Decline and Fall

Mainly stemmed from false profit reporting Enron was able to obscure its losses for almost five years

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The Enron Scandal: One of the largest bankruptcies in United States history

Enron
Americas Most Innovative Company for six consecutive years -Fortune Magazine

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The Enron Scandal: One of the largest bankruptcies in United States history

Legislation
Scandal resulted in a lot of new legislation that: -reformed accounting practices -heightened the ability of the SEC to investigate accounting fraud Example: Public Company Accounting Reform and Investor Protection Act (2002)

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The Enron Scandal: One of the largest bankruptcies in United States history

Business as Usual
Politicians received millions of dollars in campaign donations from Enron during the period when the federal government deregulated the energy industry -Diane Lindstrom

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The Enron Scandal: One of the largest bankruptcies in United States history

April 2001:
Enron reveals that it is owed more than five hundred million dollars by bankrupt California energy companies

October 2001:
On the 16th, Enron reports a third-quarter loss of 618 million dollars. The next day, Enron reveals that due to an error in accounting it had overstated the companys worth by a billion dollars.
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The Enron Scandal: One of the largest bankruptcies in United States history

November 2001
Enron restates its earnings for the past 4 years, saying its profits were 568 million dollars less than it had announced previously.

December 2001
Enron files for Chapter 11 bankruptcy on December 2nd Experts dont expect the company to survive bankruptcy intact.

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Recovery

To date Estate has returned total

$21.428 Billion
October 1, 2008
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Organizational Ethics: 4 bottom lines

Economic Scandal: False Profitability

Between 1 and 2 M$ in hidden debts Artificial increase of stock value Dec 2000: top executives were paid 750 million $ in bonuses whereas the declared net profit was 975 million $

Political Scandal: Lack of Equity

29 top executives : 1M $ in stock options before bankruptcy whereas employees were forbidden to sell their options CEO alone : sold 67m $ worth of options
4 500 employees were laid-off. Severance package: 13 500 $ per employee

63% of the 21,000 employees lost all their pension plan (plan 401K)

Response of Social Actors : to Ethical Issues

Enron : denial; legal attack for breach of contract; lobbying; corruption; intimidation; etc.
Financial analysts: no investigation of allegations, nor of note 16

Monitoring bodies ineffectual

Media: a few articles on tensions in India; no field investigations, no images

Still today: the Enron scandal: a financial scandal for most people

Lay/

Skilling

Fastow

Lessons to learn from the Case

Ethics cannot be fragmented Company governance must integrate the active participation of all stakeholders who affect the organization's activities or who are affected by these activities

And in all four domains : profitability, equity, dignity and viability

Thank you