Enron Case on Wall Street

The topic highlights a firm that was highly valued on Wall Street and that was among the leading corporation in the world. It went from a global leader to being the largest corporate bankruptcy in the world.  The case highlighted the impacts of ineffective leadership, poor corporate culture, complicity among the Investment Banking Community and accounting malpractices.  These issues were the major cause for the collapse of the most priced Wall Street investment of the time.  This case is important since it shows what can happen to a firm and what its management is capable of when they become obsessed with maximizing profits regardless of the involved cost.  The ethical issues highlighted stems from leadership arrogance and ruthless exercise of power where those who point out management and accounting malpractices in a firm are eliminated and the failure to exercise oversight over the various operations in an organization.

Background

 Enron Corporation represents a story of a firm that attained dramatic height only to experience a dramatic fall.  The growth of the firm can be attributed to the deregulation of energy market which enabled firms to bet with future prices and an opportunity that Enron took advantage of.  Such a regulatory environment allowed the firm to grow and flourish at a time when the dot.com bubble was in at the top.  The firm was executing trades worth almost $350 billion and when the bubble started to burst which made Enron to embark on building of high-speed broadband networks (Seabury, 2015).  With big funds invested in this project, nearly zero returns were realized and after onset of 2000 recession, the firm was significantly exposed to market volatility. Both creditors and investors found themselves at the losing end as the market cap was vanishing. As the firm was crumbling under its weight, Jeffrey Skilling, the CEO was using mark-to market accounting to hide the losses incurred from various operations of the firm (Seabury, 2015). The executives recorded profits on investments that had not made a single dime, and such assets would be transferred to a corporation not in the books. An attitude that the firm needed no profits was created which implied that any loss could be written off without its bottom line being hurt.   This was done in collaboration with other Wall Street firms and soon the firm was experiencing a free fall.  The use of Special Purposes Entities enabled the firm huge toxic assets and debt an illegal practice.  The firm declared bankruptcy and reorganization was put in place so as to liquidate some assets and operations and pay creditors (Seabury, 2015).

 The case presents a leadership problem of failing to take necessary actions, providing proper insight and failure to bear the ethical miscues responsibility in an organization.  Lay, CEO downplayed the impacts of financial malpractices and executives left workers of the firm to their own devices.  Even after the collapse of the firm, no one in management owned up to the ethical and leadership errors (Gore & Murthy, 2011). The case of Enron collapse represents a regrettable incident. It is necessary to understand why and how it occurred so that to learn how such situations can be avoided in the future.  The firm had incurred huge losses due to financial malpractices, greed and arrogance in the entire management from top to lower levels (Gore & Murthy, 2011). The case will remain in the mind of business leaders in future, to set an example of greediness and poor leadership, and actions that can have been taken to avert the recurrence.

 The libertarian theory is largely applicable to this case, which calls for free markets and which basically means unregulated market.  In such a market, one possesses the freedom to buy or sell what they want regardless of how unpleasant they are. The libertarians actually oppose the regulation of the market so that people are allowed to engage in trading activities in the ways they wish. The Enron executives bought into this idea and engaged in various actions with little regard of the effect they would have on the economy and the people who depended in the firm.   Regardless of the responsibility placed on Enron management for the collapse of the firm, the case has various limitations shown in sharing of the blame.  A major limitation involves the failure to recognize the complicity on the part of banking community, which enabled the continuation of this fraud by consistently offering debt facilities without questioning the strategies undertaken (Johnson, 2003).  However, the actions taken by regulatory authorities including prosecuting the perpetrators and passage of Sarbanes-Oxley Act were largely effective. Their aimed at improving transparency and accountability by enhancing regulation of the market. But it’s hard to proof that this has been achieved in the modern market.

Summary

 The collapse of Enron was largely attributed to the arrogance and greed for more profit at any cost which led to accounting malpractices and filling of Bankruptcy.  The major problem in this case relates to unethical behavior in the entire organization. The purpose of the case is to show the impact of leadership arrogance and ruthless exercise of power which is unregulated.

Reference

Johnson, C. E. (2003). Enron’s ethical collapse: Lessons for leadership educators.

 Seabury, C. (2015). Enron: The Fall Of A Wall Street Darling.

 Gore, A., & Murthy, G. (2011). A case of corporate deceit: The Enron way. Negotium, 6(18).