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What Happened At Enron Case Solution

Solution Id Length Case Author Case Publisher
1867 1469 Words (6 Pages) Michael Moffett Thunderbird School of Global Management : TB0123
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Series of problems, which kept building, and were not, paid attention to, stabbed Enron to death. Only Jeffery Skilling can’t be held guilty.  Rebecca Mark and Ken Lay also played their part. Jeffery Skilling, however, played an important role in bringing the company to such condition. Series of events kept on going, until Enron was dead. It started, with recruitment of Jeff Skilling. He introduced MTM accounting, to a gas supplying company, which was meant for financial service, and it was only successful for short term gains. Using MTM, earnings got over stated to such extent, that investment and sales fell below cash flow. Then he introduced, lose culture, that promoted only deal making. Even rewards were given on making deals. It was not considered important whether and how, the promise will be fulfilled and also linked loyalty to rewards.

Following questions are answered in this case study solution

  1. What structure, people, attitudes established the culture at Enron? Would you have liked to work for Enron?

  2. How did Enron’s financially focused culture lead to its ruin? What was the significance of SPEs? What did they do?

  3. How did the large overseas infrastructure project impacts Enron’s performance? What went wrong in the internationalization of Enron?

  4. Why did Enron fail?

Case Analysis for What Happened At Enron Case Solution

1. What structure, people, attitudes established the culture at Enron? Would you have liked to work for Enron?

Enron had a history of recruiting the best and the brightest employees, employees who are innovative and are blessed with an entrepreneurial mindset.  Within Enron, many subcultures, as per departments, were prevalent. But, after Jeffery Skilling’s takeover, as a COO and President, the culture that was part of ECT became predominant. The company shifted from its core of being a gas supply company to a trading company. The culture enforced by Jeffery Skilling was referred as a “lose culture” that encouraged risk taking, deal making and superior performance. One thing to mention here is that, in the name of “lose culture”, Jeffery always promoted performance, not loyalty. Loyalty was linked with performance, perks and bonuses. Jeffery Skilling was also promoter of out of the box thinking and actions. Another interesting thing that was inculcated in by Jeffery Skilling and Rebecca Mark was “deal making”, and because of that attitude people hired were intelligent, and intellectuals, a trend from engineers and science field employees, got shifted towards MBAs. What was considered to be important was making deals, it was not considered that important to act onto those deals and deliver promises. As per situation, rewards also got based on “deal making”. So in other words, the attitudes build in by Rebecca marks and Jeffery skilling promulgated the culture supporting short term financial results. Because of Jeffery Skilling’s influence, to support built attitude, the structure of accounting was changed to market to market. This caused sales and earnings to be recognized on deals. Rebecca Mark was also a follower of those standards. As a result, of that innovative and entrepreneurial mindset for “deal making”, Enron jumped into many ventures and investment realizing the sales and earnings on deals. 

Case claims that Enron always supported entrepreneurial thinking and provided a platform for executing it. But the culture and attitudes supported were a question mark on future sustainability of the organization. I am doubtful, if it really was an entrepreneurial thinking? For me, entrepreneurial thinking lies in thinking not only innovation, but also the future sustainability of the organization considering it own. One cannot judge the exact situation, as it gets easily portrayed by case. But as an employee, if I were aware of the situations, occurrence and intentions I would probably have not worked for the organization that on the name of innovation and entrepreneurial thinking promotes self interest. 

2. How did Enron’s financially focused culture lead to its ruin? What was the significance of SPEs? What did they do?

Enron’s financial focus was the primary reason for its debacle. Financial focus caused the change in attitude and overall culture of the organization. That also changed the focus on only making deals, not really concerned about delivery of promises. Because of this Enron made huge investments and got into newer businesses and creating markets eventually end up not losing on them, but running deficit. Supporting “deal making” attitude Market- to- Market accounting technique, generally uses in financial services, was implemented. Using of MTM allowed Enron to recognize the sales and earnings on deals, although most of actual sales and profits and cash flow would not actually occur until way into the future. This leaves out the possibility of defaulters, showing strong balance sheet to attract more investors and others. In other words, it aimed at gaining short term results. Enron’s financial focus turned it into a trading corporation, instead of its core being “a natural gas company”.

SPEs called special purpose entities; a company can treat SPE as an independent entity to do business with, fulfilling two conditions of having independent owner with 3% equity at stake. And retain independent control. Any gains and losses on transactions with SPE can be recorded, but assets and liabilities of SPE are not on the balance sheet, even though they are closely related.

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