Examine a Business Failure
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Enron – Business Overview
In 1985, Enron was formed due to the merger of Houston Natural Gas and InterNorth under the direction of CEO Kenneth Lay. This merger made Enron one of the leading companies in the United States. After the merger, deregulation caused the company to not have exclusive rights to its pipelines. This coupled with an excessive debt was the beginning of a downward spiral for Enron. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow (Thomas, 2003). In the eyes of the public and on paper, Enron was a large profitable company. What the people did not know was Enron was billions of dollars in debt. In October 2001, Enron reports a substantial lost that caused The Securities and Exchange Commission (SEC) to request further explanation and information on the reported losses and financial restatements (Gudikunst, 2003). Poor leadership and management is what caused Enron to go bankrupt. The following paper will discuss the management and leadership failures.
Enron’s Failures
According to Bierman (2008), Enron’s biggest mistake was the departure of Rich Kinder. The second biggest mistake was the appointing of Andrew Fastow as CFO. Bierman feels the second mistake would not have taken place had Lay and the Board of Directors appointed Kinder CEO. John Wing was another manager that was relieved of his post at Enron. The top executives were more focused on the shareholders wealth being increased. To do this they need like minded people in charge. Rich Kinder and John Wing did not fit in the structure design of management that Kenneth Lay had in mind. With increased stock prices and a decreasing desire for the stock, executives decided to use unapproved accounting methods on the financial statements to get the desired numbers. The downside that was not anticipated by Enron was that if things did not change financially, they would have to continue using aggressive accounting...
In 1985, Enron was formed due to the merger of Houston Natural Gas and InterNorth under the direction of CEO Kenneth Lay. This merger made Enron one of the leading companies in the United States. After the merger, deregulation caused the company to not have exclusive rights to its pipelines. This coupled with an excessive debt was the beginning of a downward spiral for Enron. In order to survive, the company had to come up with a new and innovative business strategy to generate profits and cash flow (Thomas, 2003). In the eyes of the public and on paper, Enron was a large profitable company. What the people did not know was Enron was billions of dollars in debt. In October 2001, Enron reports a substantial lost that caused The Securities and Exchange Commission (SEC) to request further explanation and information on the reported losses and financial restatements (Gudikunst, 2003). Poor leadership and management is what caused Enron to go bankrupt. The following paper will discuss the management and leadership failures.
Enron’s Failures
According to Bierman (2008), Enron’s biggest mistake was the departure of Rich Kinder. The second biggest mistake was the appointing of Andrew Fastow as CFO. Bierman feels the second mistake would not have taken place had Lay and the Board of Directors appointed Kinder CEO. John Wing was another manager that was relieved of his post at Enron. The top executives were more focused on the shareholders wealth being increased. To do this they need like minded people in charge. Rich Kinder and John Wing did not fit in the structure design of management that Kenneth Lay had in mind. With increased stock prices and a decreasing desire for the stock, executives decided to use unapproved accounting methods on the financial statements to get the desired numbers. The downside that was not anticipated by Enron was that if things did not change financially, they would have to continue using aggressive accounting...