Foundations of Business
description issues material & sources
Energy giant Enron was once the seventh largest company in the USA, and its collapse in late 2001 was the largest corporate failure in US history.
> key events

Shareholders Enron chairman and chief executive Ken Lay pocketed millions of dollars by offloading shares over the past few years.

Meanwhile, many employees of Enron lost the bulk of their life savings and pension, which were tied up in Enron shares.

Political connections Enron was a generous donor to US politicians, funding both Republicans and Democrats. Ken Lay had close ties to President George W. Bush, both before and after his election.

Enron was also the leading corporate donor to the re-election campaigns of Texas Supreme Court judges between 1993 and 2001. At this time, Enron was a party to six petitions for review before the court.

Concealed debt Enron used special-purpose vehicles (including one named Jedi II) to hide debt from shareholders.
Economics What was the Enron business model, was it economically viable? What is the role of accountancy and audit in this case?

Compare and contrast the new "asset-light" economy with the old "asset-heavy" economy in ethical terms. What are the likely differences in system behaviour?

Ethics Who were the stakeholders? How were their interests represented?

Why do you think Enron had an ethical code? Why do you think it was so easy for Enron directors to bypass the code?

Systems Theory Discuss the gap between public illusion (including financial accounts) and private reality.  What enabled the construction of this illusion? What mechanisms were supposed to puncture such illusion, and how did these mechanisms fail?

Social What new mechanisms and fixes, relationships and regulations are proposed to prevent future Enrons? How effective are these likely to be? 
Recommended Book: John Plender, Going off the Rails. John Wiley, 2003. - a website established by former Enron employees - Financial Times

Key Events

September 2000. Enron chairman Kenneth Lay tells employees in an online conference call that Enron stock was a bargain. At this time, he was quietly selling Enron stock worth over $16m.

October 2001. Enron eliminates $1.2bn of shareholder equity. Enron stock falls from $90 per share to practically nothing.

October 31, 2001. The Securities and Exchange Commission (SEC) announce a formal investigation into the finances of Enron.

November 21, 2001. Shareholder lawsuit filed by Amalgamated Bank and the AFL-CIO.

January 15th, 2002. It is revealed that Enron’s auditor, Andersen, had shredded and deleted documents relating to Enron after receiving subpoenas from regulators.

January 22nd, 2002. It is alleged that Enron itself had also shredded and deleted documents


enron - gap between appearance and reality

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This page last updated on February 18th, 2004
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