Enron: The Smartest Guys in the Room is a documentary that was produced in 2005 as a reflection of the 2003, bestselling book with the same name. The documentary was written by Bethany Mclean and Peter Elkind. The film, produced by Alex Gibney is an explicit demonstration of how reputable corporations can tumble down because of illicit financial management. The film is about the Enron Company, which experienced enormous financial drains because of the scandals elicited by its top managerial team. Two years after the inception of the company, two traders engage in betting activities on the lucrative oil markets.
This eventually leads to suspicious profits for the company, a phenomenon that raises eyebrows on the financial stand of the company. It is also discovered that Enron’s Chief Executive Officer is redirecting the company’s finances to different accounts. In demonstrating the poor financial management of Kenneth Lay, he encourages the traders to keep on making money for the company, yet he understood clearly that betting is a risky activity that could cause the company a lot of its assets. Lay finally realizes his mistakes when he sacks the traders because of wasting the company’s reserves through gambling.
Their actions virtually damaged the image of Enron. When the facts about what happened to the company are exposed, Lay argues that he had no knowledge of the illicit financial endeavors. Jeffrey Skilling is brought in as the new CEO and immediately imposes his own principles about handling profits and projects. Skilling adopts a management practice that engages the company in projects without examining whether the projects have the capacity to be successful or not. This is indeed, a trait that has the capacity to taunt the image of the company in respect to the management of its assets and resources.
In essence, this portrays Enron as a profit making company, even if it is not making any profit. The film also highlights on Skilling’s theory of grading employees and firing those who do not perform well, on an annual basis. In order to fulfill his endeavors for the company, Skilling appoints Clifford Baxter and Lou Pai, who heads the Enron Energy Services. Pai is an irresponsible executive who squanders money belonging to shareholders by visiting entertainment joints. Eventually, Pai resigns having cost Enron a loss of $1 billion. After selling his stock, he purchases a ranch in
Colorado and becomes one of the largest landowners in the state. Despite the declining performance of Enron in the global scale, the company initiates a public relations campaign that displays itself as profitable and solid. With the short term successes that the company gets, it tries to captivate stock market analysts. Executives raise their stock prices and introduce the broadband technologies in order to distribute movies on demand, but the projects do not meet their expectations. After a series of financial irregularities, Jim Chanos and Bethany McLean expose the financial misappropriation and irregularities in stoke value.
In response to the allegations, Skilling argues that McLean is unethical in his assertions. It is also found out that Andrew Fastow, one of Enron’s executives has been defrauding Enron of millions of dollars. Indeed, this is a documentary about the fall of a big corporation because of financial misappropriation (Gibney, A. and McLean, 2005). II. Analysis In reference to the documentary, it is worth pointing out that the management of the company did not articulate its financial obligations in the most feasible way. Financial management is an integral aspect in the success of a company.
A company’s management should ensure that proper procedures are followed in capitalizing on its assets in order to avoid loses in the future (Bhat, 2008 p. 65). The management team’s lapse in controlling its finances led to the downfall of the company. The image of the company was put at risk because of the selfish actions of the leadership. The company’s corporate image was not able to maintain its stability, bearing in mind that the media exposed the inappropriate handling of the company’s assets. Embezzlement of the finances led to the loss of confidence in the public eye.
This is a clear indication that financial obligations are pertinent in influencing the performance of a company; since, financial endowment is a primary component of expanding the image of a business enterprise (Shoffner, Shelly & Cooke, 2011 p. 36). It is also worth noting that the management’s actions affected the performance of the employees. In a company, it is extremely pertinent to invest in feasible measures that will enhance human capital.
A well established human capital is instrumental in providing a viable platform for proper financial management (Jones & Spender, 2011 p. 94). When the management started a program of rating and firing employees, this created a non-cohesive environment that did not give employees a chance to thrive. In this respect, employees could not fulfill their obligations in enhancing the capacity of the company. In addition, the stakeholders to the company lost confidence in the management team of the company because it did not deliver as it was expected of them. This affected the input of the stakeholders as well as the internal and external cohesion of the company.
It is also critical to assert that the company faced financial implications resulting from management’s failure to conduct itself in a competent and professional way. The company’s markets share did not achieve its expectations; since, it could not maintain stability in the stock market. The values of its shares could not compete vehemently with other companies because the company had lost its market value. Moreover, the company incurred losses in regard to its assets record through engaging in illicit financial planning.
This led to the company failing to meet its financial objectives; since, it was not in a position to control its costs. The failure of a company to control its costs leads to unaccountability and the risk of loses due to poor accounting systems (Lee, 2006 p. 201). Additionally, the company experienced a lapse in its financial accounting systems in an effort to hide the misappropriation of finances. Compromising the financial accounting systems resulted to slow growth in the development of feasible accounting procedures (Hampton, 2009 p. 6). Another financial consequence to the company was the inability to control debts. The company could not keep track of its debts because its financial records had been compromised by the incompetence of the management team.
The lack of proper financial returns led to inconsistency in the company’s performance; hence, leading to an internal financial crisis. In this respect, it is viable to underscore that the financial inconsistency in a company is a contributing factor in its financial meltdown (Brigham, Gapenski & Ehrhardt, 2011p. 12). III. Commentary The actions of the management team were indeed detrimental in the financial breakthrough of the company. The company’s resources were put in jeopardy because of mishandling the assets in an unethical manner in respect to business standards. The employees of the company did not have a cohesive environment to capitalize on their potential. They could not handle the products and services of the company in a professional way because the management team did not provide the platform for enhancing the cost of goods.
I believe the biblical worldview as Christ would view it for the church is that whatever you do in the dark will be exposed. The Bible states that God hates the very presence of evil and it will have no place in his kingdom. So the catastrophic effect that this company had on society was abomination to what God would want for his people. God wants us to suffer with him and the end result is that we will reign with him, however lying, cheating and stealing will not have a place in heaven. As part of the management team, I would have handled things differently.
Firstly, it is significant to point out that I would not allow incompetent people to control the company’s finances. Only competent people would be allowed to handle the company’s financial obligations and management of the company’s assets. Secondly, it is essential to assert that I would invest immensely in the employees of the company. I would ensure that human capital is enhanced in order to improve the image of the company. It is widely acknowledged that an empowered human resource is vital in the success of a company; hence, I would seek to empower the activities of the employees.
Moreover, as part of the management team, I would ensure that transparency is enhanced in corporate governance. The duties and responsibilities of every stakeholder would be defined in an amicable way, in order to avoid the confusion that emerges. This would play a dominant role in enhancing the profitability of the company, as well as improving the image of the company in a large scale. Indeed, it is critical for any business enterprise to adopt a viable mechanism of enhancing its corporate governance (Baker, 2008 p. 78).
In my opinion, I believe what happened was as a result of managerial incompetency by the management team. Lack of inconsistencies in financial breakthrough by the company led to the meltdown in the company’s assets and costs control. In this respect, I believe that accounting laws and regulators can help in avoiding this scenario again. The accounting laws will play a dominant role in keeping track of a company’s financial assets and prevent it from incurring unnecessary loses. In addition, it is critical to highlight that such law and regulators will help immensely, in holding the management accountable.
The management team of a company will be able to maintain high profile accountability in maintaining the value of the company. The market share of a company is able to attain reputable standards because of using the accounting laws. Additionally, accounting laws and regulators act as instrumental platforms in identifying challenges in a company, and making the necessary decisions in overcoming the challenges. The management team of a company is able to use business intelligence in developing a way forward in solving the challenges that a company faces in respect to financial management.
In order to avoid the detrimental effects of financial mismanagement, companies can adopt viable ways of managing their operations. Transparency is a critical way of enhancing the gains of a company because its operations are open to scrutiny. In addition, it is important for companies to employ competent personnel to handle its operations, ranging from cost control to managing its experiences. It is pertinent for companies to develop policy frameworks that implement feasible financial obligations.
Courtney from Study Moose
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