The Collapse Of Enron Corporation - 1988 Words

Introduction: The abrupt and unanticipated collapse of Enron Corporation was due to one of the largest accounting frauds in U.S. history. This scandal had significant impact on the financial markets by causing enormous financial losses for numerous investors. Before filing for Chapter 11 reorganization bankruptcy protection in December of 2001, Enron was named the Most Innovative Company in America by Fortune Magazine from 1996 to 2001, and also named first in 1999 on its list of the 100 Best Companies to Work For in America (McLean Elkind, 2006). For many years, this Houston-based energy company was widely regarded as a fast growing, well-managed, and prosperous organization. However, after years of manipulating accounting†¦show more content†¦In other words, Enron went from concentrating on the energy market to brokering future energy contracts and exploring other ways to make money. One of the ways Enron tried to make more capital was to act as an intermediary that would pledge for stable prices. In 1990, Jeff Skilling, a Harvard graduate, joined the company and ran an innovative, differentiation strategy called Gas Bank (Thomas, 2002). Basically, the plan entailed Enron purchasing natural gas from suppliers and selling it to customers. This strategy allowed the company to guarantee both the price and needed supply while also charging fees for typical risks associated with the business model. From the success of that energy derivative concept, Enron expanded it to bet against the risk of price fluctuation for other commodities, such as: coal, steel, water, power generation, and, around the dot.com boom, offered fiber optic cable (Healey Palepu, 2003). This decision to expand its trading option is the reason why many credited it as being an innovative organization. Another key factor to its early success was Enron s change in accounting systems. The company had previously been using a straightforward system that would just list actual profits and the expenses for supplying and distributing the gas to consumers. Skilling spearheaded the transition to a new method called mark-to-market (Fox, 2004). This accounting system allows EnronShow MoreRelatedThe Collapse Of Enron Corporation1787 Words   |  8 Pagesâ€Å"When a company ascends to the number seven spot on the Fortune 500 and then collapses in weeks into a smoking ruin, its stock worth pennies, its CEO, a confidante of presidents, more or less evaporated, there must be lessons in there somewhere.† -Daniel Henninger, The Wall Street Journal The collapse of Enron Corporation has created many discussions about the structure of corporate governance. 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