Enron: Financial Misconduct and Management Failure

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Enron: The Smartest Guys in the Room, a documentary released in 2005, is based on the popular book published in 2003 by Bethany Mclean and Peter Elkind. Directed by Alex Gibney, this film illustrates how reputable corporations can collapse due to illegal financial practices. Focused on Enron Corporation, the documentary shows how the company encountered major financial difficulties following scandals involving its top executives. Just two years after its establishment, two traders started making risky investments in the lucrative oil industry.

The suspicious profits for the company eventually raise eyebrows on the financial stand of the company, as it is discovered that Enron’s Chief Executive Officer is redirecting the company’s finances to different accounts.

Kenneth Lay demonstrates poor financial management by encouraging traders to keep making money for the company, despite understanding that betting is a risky activity that could jeopardize the company's assets. Lay acknowledges his mistakes when he fires the traders for squandering the company’s reserves through gambling.

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Despite Lay claiming ignorance of the illicit financial activities that damaged Enron's image, Skilling took over as CEO and implemented a reckless management practice that could further tarnish the company's reputation by pursuing projects without ensuring their potential for success.

Essentially, the depiction of Enron in the film is that of a company focused on profits, even if it is not actually profitable. The movie also highlights Skilling's practice of evaluating and firing employees annually based on their performance. To further his goals for the company, Skilling appoints Clifford Baxter and Lou Pai, who leads Enron Energy Services.

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Pai, an irresponsible executive, wastefully spends shareholders' money on entertainment. Ultimately, Pai resigns after causing Enron a $1 billion loss. He sells his stock and buys a ranch.

Enron, by acquiring vast land in Colorado, becomes a major landowner in the state. Despite Enron's declining global performance, the company launches a PR campaign to portray itself as successful. Despite some initial successes, the company struggles to impress stock market analysts. Executives attempt to boost stock prices and implement broadband technology for on-demand movie distribution, but the projects fall short. Following financial irregularities, Jim Chanos and Bethany McLean uncover financial misconduct and discrepancies in stock value.

Skilling denies McLean's allegations of unethical behavior, while it is exposed that Enron executive Andrew Fastow has been embezzling millions. The documentary illustrates the collapse of a large corporation as a result of financial misconduct (Gibney, A. and McLean, 2005). Examination of the film emphasizes the company's management failure to effectively communicate its financial obligations. Successful financial management is essential for any company to thrive.

According to Bhat (2008 p. 65), it is crucial for a company’s management to follow proper procedures when capitalizing on its assets to prevent future losses. The management team's failure to control finances ultimately led to the company's downfall and put its image at risk due to selfish actions. The media exposure of the inappropriate handling of assets resulted in a loss of stability for the company's corporate image, eroding public confidence due to financial embezzlement.

The text highlights the importance of financial obligations in impacting a company's performance, as financial resources play a crucial role in shaping the reputation of a business (Shoffner, Shelly & Cooke, 2011 p. 36). It also emphasizes how management decisions can influence employee performance and the need for investing in strategies to improve human capital within a company.

Jones & Spender (2011 p. 94) emphasized the importance of a robust human capital in financial management. However, by enforcing a policy of evaluating and terminating employees, the management created a disorganized atmosphere that hindered employee success and overall company growth. This lack of contribution from employees resulted in stakeholders losing faith in the management team's capabilities to fulfill expectations, causing diminished support from both internal and external sources.

It is crucial to highlight that the company faced financial repercussions because of the incompetence and lack of professionalism in management. This led to the company failing to meet its market share targets, causing volatility in the stock market. The company's shares were unable to keep up with competitors due to a decrease in market value. Additionally, unlawful financial practices resulted in losses in asset records for the company.

The company's failure to achieve financial goals was caused by its inability to manage costs, leading to unaccountability and the potential for losses due to inadequate accounting systems (Lee, 2006 p. 201). Additionally, there was a breakdown in financial accounting systems in an effort to hide financial misconduct, resulting in slow progress in establishing efficient accounting practices (Hampton, 2009 p. 6). Another outcome was the company's struggle to handle debts because of compromised financial records stemming from managerial incompetence.

Inconsistent financial returns led to an internal financial crisis within the company, highlighting the significant role that financial inconsistency can play in a company's downfall (Brigham, Gapenski & Ehrhardt, 2011, p. 12). The management team's actions negatively impacted the company's financial success by mishandling assets unethically, jeopardizing resources and hindering employees from reaching their full potential. The lack of a cohesive environment created by management affected professionals' ability to effectively handle the company's products and services.

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.

Having competent individuals in charge of the company's finances and assets is crucial. Investing in employees to enhance human capital and reputation should be a top priority, as a skilled and motivated workforce is key to achieving success.

As a member of the management team, my main focus is on enhancing transparency in corporate governance by clearly defining the duties and responsibilities of each stakeholder. This strategy will not only enhance the company's financial performance but also boost its reputation, as effective implementation of corporate governance practices is essential for achieving business success (Baker, 2008 p. 78).

In my view, the incident was caused by the management team's incompetence, leading to a decrease in assets due to the company's financial instability and lack of cost control. I believe that implementing accounting regulations and oversight can help prevent similar situations in the future by allowing companies to monitor their finances effectively and reduce unnecessary losses. It is important to recognize that these regulations also promote accountability among management.

The management team of a company uses accounting laws and regulators to maintain high profile accountability in maintaining the value of the company and attaining reputable market share. Accounting laws also serve as instrumental platforms in identifying challenges and making necessary decisions to overcome them. The management team utilizes business intelligence to develop solutions for financial management challenges.

Companies can prevent the negative impacts of financial mismanagement by implementing effective strategies. Transparency is essential for increasing profits as it allows for scrutiny of operations. Hiring skilled personnel to oversee various tasks such as cost control and customer management is crucial. Developing policy frameworks to enforce manageable financial responsibilities is also important.

Updated: Feb 21, 2024
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Enron: Financial Misconduct and Management Failure. (2016, Oct 02). Retrieved from https://studymoose.com/enron-smartest-guy-in-the-room-essay

Enron: Financial Misconduct and Management Failure essay
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