Examine a Business Failure

Running head: EXAMINING A BUSINESS FAILURE – ENRON

Examining a Business Failure – Enron

Manasi Mahabal

University of Phoenix

Examining a Business Failure – Enron

Enron was founded in 1985 and soon in few years became largest merchant of natural gas which eventually suffered from financial scandal. The major contribution to the failure of Enron was the discovery of irregular accounting procedures and manipulations of stock prices. The seventh largest company in United States collapsed in fall of 2001. The various issues involved with the failure of Enron apart from financial embezzlement were the management and leadership issues involved during the scandals. The following paper identifies the management and leadership failures which led to Enron scandal and how these failures could have been prevented.

Failures of Enron

The reason which was driving the executives of Enron to do things which are now associated with the failure of the company was “The desire to satisfy the profit and stock price expectations of the investing public, in an effort to fulfill the corporate objectives as stated in the financial management texts, to maximize the value of the firm to the shareholders.” (Gudikunst, 2002). The failure of Enron had many reasons, to start competition with each other and secrecy at the top management level, the complicated balance sheets prepared by accountants suggested a good financial position of Enron, due to which many investors kept on investing into Enron’s projects, and when the stock value of Enron started falling the cracks in Enron’s financial and profits started exposing. At first glance Lay, Skilling and Fastow, the senior executives at Enron appeared to be the primary suspects for the failure of Enron. (Gudikunst, 2002)

Failure due to inefficient management and leadership

Bad decisions by the board of directors, management, employees were the causes of Enron’s failure (Michel, 2002). The governance of the company failed to...