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First, I will discuss will be the short history leading up to the fall of Enron.Most everyone knows that Enron is an electrical trading powerhouse.It rose to the top of its field basically by creating a monopoly to its competition. In January 17, Jeffrey Skilling was named president and COO of Enron.In July of that year Enron paid $. billion for Portland General Electric to combine the utility wholesale and retail electricity expertise with Enron's natural gas and electricity marketing and risk-management skills.In August of that same year, they branched out beyond energy, introducing commodity trading of weather derivatives.In May 18, Rebecca Mark, a rising star who helped cinch Enron's $ billion power plant in Dabhol, India, in the early '0s, is named the vice-chair.She is a rival of Skilling.In July that same year, Enron pushed into the foreign markets, paying $1. billion for the main power distributor Sao Paulo and $.4 billion for Britain's Wessex Water.Wessex becomes a building block for Mark's new global water business, Azurix Corp.Then, in April 1, they pay $100 to name Houston's new baseball stadium Enron Field.In June 1, Enron sells a third of Azurix to the public, raising $65 million.In November of the same year, Skilling launches EnronOnline, a Net-based commodity-trading platform.Then, in August 000, a power shortage darkened California, and state politicians blamed Enron and other energy outfits.Problems at Azurix drove its stock to $5, down from $1 at the IPO.In that same month, Mark's resigns as Azurix' chief and Enron director.In December 000, Skilling is to be promoted as CEO in February of 001.Enron's stock has soared 87% in 000.Enron then offers to take Azurix Private. In March 001, Enron is investigated for alleged pricing gouging.In June they sold shares in the first half as the stock slid %.Skilling's total shares equal $17.5 million.In August, Skilling stunned investors by announcing his quitting for "personal reasons".On October 16th, Enron reported a third-quarter loss of $618 million and shrunk shareholder equity by $1. billion. They cited the losses due partially to partnerships run by then-CFO Andrew Fastow.Six days later the SEC started inquiries into Fastow's partnerships.Two days later Fastow quits.On October 1st, Enron set up a committee to conduct an investigation of its accounting.On November 8th, net income is revised back through 17, trimming it by $586 million.November th, Dynergy Corp. agreed to buy Enron for $10 billion.November 15th, Kenneth Lay said Enron made billions of dollars of "very bad investments." On November 1th, Enron said it may have to repay a $60 million note and take a $700 million pretax charge.On November 8th, Dynergy bailed out of the merger after seeing unanticipated debt and cash flow problems in Enron's 10Q filing.Enron's credit is downgraded to junk status.Then, finally on December nd, 001, Enron filed for the largest Chapter 11 reorganization in history.
As you followed this time line to the downfall of Enron, you can notice how the spending habits and unwise investments Enron made lead to the downfall.Also, Cliff Baxter, Enron's chief executive, supposedly committed suicide but the case is still open to possibly a murder because things were just to suspicious to why he would kill himself after just taking a vacation. But it goes much deeper than that.If stock prices were so good then why did Enron have to file for bankruptcy? They should have had enough money, right? The problem lays within what went on behind closed doors, MANAGEMENT.As you've heard about all the scandals of the accounting firm Anderson shredding documents and the upper stock holders taking out their money and inflating Wall Street's reports of the quarter earnings on Enron, you know that someone is hiding something.Behind it all it lays on the problems of management.
Most of us have heard of the woman employee first made public the notice to management about the accounting numbers not adding up. I'm not too sure when this all took place but we know it did.The problem is she was ignored by upper management and had to take things into her own hands and be the so-called "whistle blower".An article I read in the Investment News, February 5, 00, talked about how reliant analysts are on management.Robert Olstein, President, chief executive of Olstein & Associates makes the comment that "There's too much reliance on management." He also states, "every company does something, [and] the analysts and portfolio managers need to make adjustments." Mr. Olstein knows how important management played in this whole Enron case.
Next I will discuss the area of management that involves the decision-making process in which I feel Enron failed and led to their collapse.
The first thing to do in a decision-making process is to confront the situation by recognizing a problem or opportunity.A problem is defined as a situation in which organizational accomplishments have failed to meet established goals. The opportunity is a situation in which managers see potential organizational accomplishments that exceed current goals.Enron's upper management should have known that something wasn't right with the accounting practices that were going on and should have done something about it right away.Of course, many of the management probably did know of the problem but they knew what would happen if it got out to the public.Instead, they ignored the problem and broke the first requirement of the decision-making process.
Next is a diagnosis and analysis of causes.The diagnosis is where managers analyze underlying causal factors associated with the decision situation.Questions they should ask are like What is the state of disequilibrium affecting us? When did it occur? Where did it occur? How did it occur? To whom did it occur? What is the urgency of the problem? What is the interconnectedness of events? What result came from which activity? This step was again ignored by Enron's management.Enron should have looked at the situation and figured out by diagnosing what steps to take to fix the problem.An example would be to get all the management together as a team because teamwork most often gets the most work accomplished and figure out how they would not let this whole thing boil over like it did.
Third thing is development of alternatives.Here, Enron should have gathered several alternatives and saw which one would best save their butts.The option of bankruptcy probably could have been avoided but I don't know all the implications of the financial situation, we do know that they did know when the first alert went out decisions could have been made to save Enron.So most likely if Enron's management did take care of business when they had a chance, then after they came up with the development of alternatives the selection of the desired alternative would have been next.
The fourth step a decision must be made.The decision should be made with the least amount of risk and uncertainty.Enron should look at the long run not the short run cost in saving themselves.My management course book talks about how risk propensity takes place, or the willingness to undertake risk with the opportunity of gaining an increased payoff.If you take a low risk propensity, then you would take a conservative or moderate approach to the situation.If you are a risk taker then you would take a go-getter attitude and take the bull by the horns and see what happens.Again, not knowing the true financial situation of Enron, I don't know what approach to take because much of what we do know about Enron is from the media, and we all know how they influence facts are released to the public.Still, the point I'm trying to get across is Enron's decision-making process was not effective.
Next, Enron should have moved to the next step after they chose an alternative, which is implementation of the chosen alternative.This involves the managerial, administrative, and persuasive abilities to translate the chosen alternative into action.My management course book also says, "Communication, motivation, and leadership skills must be used to see that the decision is carried out." In order to be successful you need to carry out what you say you are.Basically, walk the walk don't talk the talk.Then the last step would be the evaluation and feedback.This stage would still be going on in the Enron case because many criminal activities that we don't know of for sure went on and would be under investigation.For those who were honest and had integrity, I'm sure that the response they would have gotten from the public would have been much better than what happened because many employees' whole life savings were lost in this bankruptcy.Because feedback is a continuous and never-ending process, it is the most important step.Enron needs to know everyday how they are doing financially because they need to know where they stand each quarter.If they would have followed the correct decision-making process right away, so much more would have been taken care of versus now. If you were Enron and had to do the decision making, then you had so many factors to consider because of all the legal activities that went on.
The same thing can be applied for those at Anderson, the auditing firm.We know that documents were shredded by more than just one person. Now many big businesses are turning in their quarter earnings very late.So, under assumption we know that not just Enron and Anderson have been unethical, but many others will soon be under the microscope. We'll see how ethics and management tie in together.Decisions made by the management affect the whole company, so good decision making is very important in management and following the steps in order can save your company a lot of trouble as it could have for Enron.Taking a management class has added to my knowledge on the subject of business and management.Hopefully soon, everyone will be working on better decision-making processes.By having good ethics, integrity, and proper management skills can lead you to a much better path than those of poor management practices.
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