Enron’s Demise – Where There Warning Signs? Essay Sample
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Enron’s Demise – Where There Warning Signs? Essay Sample
Enron is a company which headquarters is located in Houston, Texas. Enron was first headed by Samuel F. Segnar. Enron was the result of InterNorth’s acquisition of Houston Natural Gas in 1985. Under the new terms of this acquisition, the company was headed by Kenneth Lay on the first day of 1997. Enron offered employment for 20,600 employees in four major segments over the U.S., South America. Asia, and Europe. It operates in four segments which include transportation and distribution, whole sale service, retail energy services, and broadband services. I have determined that Enron could have been a great success legitimately with the talent that it possessed but instead they used their talents to deceive. I find that Enron is being successful at reorganizing themselves in order to pay off their debts to society and other businesses.
I also find that the best thing that Enron could ever do for their image is to continue with the plans to cease to exist due to the inability to bounce back from the horrible taste they have left in the mouths of society and the corporate world along with all its customers. Enron’s mission was to stay the world largest energy company in the world. Since their bankruptcy Enron came up with a new strategy and a new name (Enron Creditors Recovery Corp). Now its sole mission is to reorganize and liquidate the remaining operations and assets of Enron. ECRC has successfully undertaken legal action to hold responsible the major financial institutions that it contends assisted the pre-bankruptcy Enron deceive the public. Once ECRC has completed all outstanding litigation and monetized all assets, it will make a final distribution to creditors. After that, the company will cease to exist.
Company’s History and Growth
Enron is a company which headquarters is located in Houston, Texas. Enron was first headed by Samuel F. Segnar. Enron was the result of InterNorth’s acquisition of Houston Natural Gas in 1985. Under the new terms of this acquisition, the company was headed by Kenneth Lay on the first day of 1997. Enron offers employment for 20,600 employees in four major segments over the U.S., South America. Asia, and Europe (Rankine, G., 2004). The transportation and distribution segment included interstate transmission of natural gas, management and operations of pipelines, and electric utility operations.
The whole sale service segment included commodity sales and service, risk management products and financial services to whole sale customers, natural gas pipeline and other energy assets, and the development, acquisition, and operations of power plants (Rankine, G., 2004). The retail energy service segment included sale of natural gas, electricity and electricity products directly to end-use customers, and the outsourcing of energy related activities. The last segment is broadband services which included marketing and managing, and delivery of high bandwidth content, and construction and management of the nationwide fiber optic network. By the end of 2000, Enron was one of the largest energy companies in the world and ranked number seven in Fortune 500 list of largest companies in the U.S (Rankine, G., 2004). Strengths and Weaknesses within the Company
Enron’s strength lies in the fact that they are one of the largest companies in the world and they operate in four different segments offering them more opportunities and a better chance at successful revenue. Enron has a very talented pool of executives. It seems that Enron’s only weakness was having a team that played with ethical values and beliefs.
Threats and Opportunities
The collapse of crude oil in the late 1980s and the exit from lending banks cause an opportunity for Enron. With the help of their new consultant, Jeffrey Skilling, Enron was able to acquire a contract that gave them claims on natural gas volumes. This was called the VPP contract. It allowed them to claim it as an equity so if there was a default, Enron would be able to have claims on the company’s natural gas reserves which means it could recover by extracting natural gas from the company’s reserves (Rankine, G., 2004). Enron became a threat to themselves. They grew too quickly. My Findings
I find that Enron is a company that could have been very capable of success. They had a skillful talent pool that is very capable of achieving success if done in the ethical way. I find that these executives should have counted things like investments in merchant assets like power plants and natural gas pipelines as being long term. It seems that Enron was using their skills to inflate their profits and the stock prices. In 2000 and in 1999, Enron made sold approximately $632 million and $192 million but counted no gains or losses on these sales (Rankine, G., 2004). I find this to be another example of being deceitful in reporting their revenue in order to keep their business ratings, profits, and stock prices up. I also find that Enron are being successful at reorganizing themselves in order to pay off their debts to society and other businesses. Enron Creditors Recovery Corp. distributed approximately $100 million to creditors in May 2011, bringing the total amount recovered to date to $21.738 billion.
There are a limited number of pending litigation and collection matters and contingent liabilities that continue to affect the timing of the closure of the Enron bankruptcy case (enron.com, 2011). The Reorganized Debtors recently settled litigation in which defendants previously received summary judgment in the United States District Court for the Southern District of New York, referred to as the “Bammel Litigation.” The Reorganized Debtors have also settled litigation with the Lay Estate, subject to mutually acceptable documentation and any court approvals required (enron.com, 2011). In addition, on March 31, 2011, the District Court entered an order affirming on appeal the denial by the Bankruptcy Court of a motion filed by National City Bank which would have required the payment of certain additional monies in the approximate amount of $8.6 million to creditors holding the Allowed ETS Debenture Claim under an agreement which NCB purports to provide most favored nations status in these particular circumstances which the Reorganized Debtors have opposed (enron.com, 2011). Business Strategy
Enron’s strategy was to be the world largest energy company in the world. At the end of 2001, it was revealed that it’s reported financial condition was sustained substantially by an institutionalized, systematic, and creatively planned accounting fraud, known since as the Enron scandal. Since their bankruptcy Enron came up with a new strategy and a new name. Enron became Enron Creditors Recovery Corp.’s. Its sole mission is to reorganize and liquidate the remaining operations and assets of Enron following one of the largest and most complex bankruptcies in U.S. history. Evaluating the Business
After Enron’s Plan of Reorganization was approved by the United States Bankruptcy Court for the Southern District of New York, the new board of directors decided to change the name of Enron Corp. to reflect the current corporate purpose. In November 2004, Enron emerged from bankruptcy and the company began its mission of reorganizing and distributing assets to its creditors (About ECRC, 2011). They adopted this mandate: obtain the highest value from the company’s remaining assets and distribute the proceeds to the company’s creditors. As part of its efforts, ECRC has successfully undertaken legal action to hold responsible the major financial institutions that it contends assisted the pre-bankruptcy Enron deceive the public. Once ECRC has completed all outstanding litigation and monetized all assets, it will make a final distribution to creditors. After that, the company will cease to exist (About ECRC, 2011). My Recommendations
I recommend that Enron stick with this plan of ceasing to exist after it has made up all of its financial responsibilities. This is the best thing for Enron. After such a scandal, it will be hard to gain respect or trust from its consumers again. Even changing the name will not help this company because the scandal will always haunt their brand and their image.
Enron Corporation. (2011). Confirmation Order Including Debtors’ Supplemental Modified Fifth Amended Chapter 11 Plan and Post-Confirmation Status Reports. Retrieved From: http://www.enron.com/ Enron Corporation. (2011). About ECRC. Retrieved From: http://www.enron.com/index_option_com_content_task_section_id_1_Itemid_2.htm Rankine, G. (2004).Enron’s Demise- Were There Warning Signs? Retrieved From: Thunderbird; The Garvin School of International Management; A01-04-0017