Term Papaer Essay

3314 words - 14 pages

Final Paper

I have selected the non-fiction book named ‘The Smartest Guys in the Room’ written by Bethany McLean and Peter Elkind. The book is based on the The Amazing rise and Scandalous fall of the Enron Corporation. Enron Corporation was an American energy, commodities and service company based in Houston, Texas. Before its bankruptcy in December 2, 2001, Enron employed more than 20,000 employees and was one of world’s major electricity, natural gas, communications and pulp and paper company with claimed revenues of nearly $111 Billion during the year 2000. In 1985 Kenneth Lay (the founder of Enron Corporation) merged the natural gas pipeline companies of Houston Natural gas and ...view middle of the document...

The scandal began in 1990 Enron’s Chief Operating Officer Jeffrey Skilling hired Andrew Fastow, who was well acquainted with the burgeoning deregulated energy market that Skilling wanted to exploit. Then, in 1993 Fastow began establishing numerous limited liability special purpose entities (a common business practice in the energy sector); however this allowed Enron Corporation to transfer liability so that it would not appear in its accounts, allowing it to maintain a robust and generally increasing stock price and thus maintaining its critical investment grade credit ratings. This clearly is related to our coursework as it specifies the tendency of data manipulation in order to make more profits and thus, I have selected this respective book as it deals with the Enron’s accounting loopholes, special purpose entities, and poor financial reporting by which Enron corporation was able to hide billions of dollars in debt from failed deals and projects. It deals with the course content as the scandal gets operated by the company’s shareholders who file a lawsuit against Enron Corporation after the company’s stock price which achieved a high of US $90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The U.S Securities and Exchange Commission (SEC) after which began an investigation. The scandal also brought into question the accounting practices activities of many corporations in the United States, the scandal also affected the greater business world by causing the dissolution of the Arthur Anderson accounting firm. Thus, the performance metrics were applied and the fraudulent operations of Enron Corporation are brought under the limelight.

Thus, it tells us the importance of performance metrics which have to be applied in a timely manner in order to make the system function well. The aftermath of the scandal was that Enron Corporation filed for bankruptcy in the Southern District of New York during late 2001. It ended its bankruptcy during November 2004, pursuant to a court-approved plan of reorganization, after one of the most complex bankruptcy cases in U.S history. The core of

the Enron story is the people, an array of brilliant, egotistical, and arrogant executives who create a corporate culture that selects for raw intelligence and vicious competition and discards most of the social virtues typical of a corporation. Thus, it tells us the importance of social virtues within an organization. The company was filled with people capable of solving advanced equations in their head, and brilliant economists who came up with both revolutionary trading techniques and ways of exploiting legal loopholes before anyone else. One of the triumphs of this book is that it captures not only the weaknesses but also the strengths of Enron Corporation and shows how much talent was let loose in an environment with no effective controls. The greed to earn more money led to the collapse of the Enron Corporation. If there would...

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