The Fall of Enron

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The fall and bankruptcy of Enron was a key time in the financial world. The fraud that was perpetuated at Enron impacted investors, employees, and the country as a whole. In order for the situation to reach the level that it did, other parties were knowledgable of the wrongdoings but did nothing to abate the issue. The business analysts took everything CEO Jeff Skilling said to be true and the investment banks involved with Enron masked loans as sales with buyback agreements. The fraud was caused mainly by key management’s tone on how to handle issues that arose relating to the firm’s financial position. By creating a high pressure work environment for employees, fixating on the company’s stock price, and prematurely booking profits Enron fostered an environment that practically encouraged unethical behavior and fraud.
After founder Ken Lay hired Jeff Skilling a new system of performance review was instituted. Skilling believed in a very Darwinistic system of employment; the employees that worked the best would get to keep there jobs and the weaker employees would be let loose. Employees underwent performance reviews on a yearly basis (PRC) and were rated on a scale form one to five. The employees that did not perform up to the standards set by there colleagues were fired, at a rate of approximately 15% of total employees a year. Among the employees this was referred to as the “rank and yank”. In order to retain their jobs in this artificially competitive environment employees, and traders in particular, became even more aggressive in their every day roles within the organization. The company was touting itself as an innovative place to work; this was solidified when Enron was voted by Fortune magazine as the most i...

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...ron created an environment that rationalized the hiding of key information. Andy Fastow managed to hide key accounting records showing subsidiary losses by creating prop companies that conducted business with Enron. These fake companies diverted the losses from Enron while maintaining Enron’s current profit expectations. Reporters were given very little information about the true state of the company when they questioned key personnel. Until the very end when Enron was subject to an SEC investigation Enron’s stock price stayed at an artificially high level even when the company was highly in debt. This allowed top executives to cash in their stock rights and make money in a highly unethical fashion. As a whole, the tone at the top caused the fraud that initially occurred to develop into an elaborate pump and dump scheme that benefited few at the cost of many.

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