“On the side of the Angels” (A Case Study)
Enron Corporation had suffered financial bankruptcy obviously because of financial manipulations of many of its executives which has long been going on but continued to be unchecked for years. This was reflected in the statement of its newly elected CEO Jeffrey Skilling during his election saying “We’re on the side of angels. We’re taking on the entrenched monopolies. ” Apparently, Enron meltdown started with the hiring of Skilling as CEO of Enron Gas Service who in turn hired Andy Fastow as Chief Financial Officer.
From then on, Enron’s financial transactions were shrouded with uncertain financial transactions. Vested personal interests, financial monopolies, and lack of genuine concern and loyalty to the company of its top executives had caused the companies fall from its number position to a bankrupt condition in December 2001. Enron came to existence through the merger between Houston Natural Gas (HNG) a natural gas distribution firm, with Inter North, a natural gas pipeline company. The man responsible to this merger was Kenneth Lay who was hired by the HNG board in 1984 as its CEO.
Under his leadership Enron rose to become 39th overall “as one of America’s Most Admired Companies” and from then, the company steadily climbed in Fortune’s “America’s Most Admired Company” with its share price rising dramatically from 1996 up to December 2000. As its CEO, Lay ably leads Enron to its greatest height in the span of 14 years and has proven himself as the man for the company. However, it seems that those fourteen years were not for him to develop deep loyalty enough to throw off his vested interests. Lay left Enron at the time the company was on decline.
When he was rehired after Skilling’s resignation after barely six months in office as CEO, he has not done any thing for “almost entire year except to sell his shares each work day” back to the company “to repay a loan from Enron” instead of working hard, just as he stated, “to make Enron the World’s leading company. ” While it is the lack of genuine loyalty and concerns that cause the company’s meltdown, the company’s culture of self will and relative leniency lured its people to engage in transactions that have no apparent benefit for the company and to initiate financial measures that have hidden purpose.
Enron’s philosophy not to “stand in the way of our employees” and to not “insist on hierarchical approval” created an influence on Enron’s employees to commit fraudulence and corruption. This worsened Enron’s financial condition because many of these transactions initiated failed as they were only meant to serve their vested interests. Skilling’s resignation simply reveals how deep the problem of Enron was and the very people that could have done something to resolve the crisis at Enron are Lay and Skilling themselves.
As chief executive officer of the company since it was founded in 1984, Ken Lay must be the person who knew Enron’s problem more than anybody else. As CEO, he should have monitored every transactions entered into by its people in behalf of the company regardless of the culture that he himself has created. He’s tolerance of its people’s dubious transactions instead of controlling them made him directly responsible of Enron’s misery. Skilling on the other hand, was in the same capacity with Lay with regard to the problem of Enron. Skilling was with Enron since 1990 though not as CEO.
Nevertheless, he knew some of Enron’s people occupying very important positions. Foremost among them was Andy Fastow whom he appointed as Chief financial officer of Enron Gas Service (EGS). Skilling could have prevented some of Enron’s failure had he took control over some procedural transactions that were left unaccomplished because of complicated procedures. The problem of Enron could have been avoided had Ken Lay and Skilling implemented risk management policy aimed at safeguarding the company from the risk of financial transactions entered into by its employees in behalf of the company.
The culture of unsupervised transactions and lax economic activities of Enron’s people requires its top management to monitor and control such activities in which both Lay and Skilling had failed. As risk monitoring requires awareness of risk at all levels of management, Lay could have done something in order to control the damage if had some awareness of the risk those transactions, such as for example the transaction entered into by Rebecca Mark in which she finalized a $3 billion deal to build a power plant in India.
Because there was no risk management for this huge project, Enron lost billions of dollars because after the plant opened in 1999, the plant was shuttered because the contract was annulled because of its extremely high energy bills. Mark also negotiated billion dollar gas-fired power generating in Brazil with no risk management and control. The project was negotiated with no apparent benefit for Enron. Tom Kendrik stressed that risk management involves specific planning for risk.
Kendrick puts it, Risk planning begins by reviewing the initial project assumptions. Project characters, datasheets, or other documents used to initiate a project often include information concerning risk, as well as goals, staffing assumptions, and other information (p. 28). Apparently, most of the projects negotiated by Enron’s people were risky and there was no effort on the part of Lay and Skilling to control such risky transactions because they no awareness of the risks of such transactions.
While Ken Lay was able to lead the company to greatest pinnacle, yet the absence of risk management and control in their management style cause the company’s decline and eventual downfall. In the end, it is the employees’ lack of respect to company’s values, culture, and ideals coupled by the lack of genuine loyalty and concern of its top management people for the company that caused its eventual meltdown and bankruptcy. Work Cited Case Study 10 “On the Side of the Angels” Kendrick, Tom Identifying and Managing Project Risk USA: AMACOM Div American Mgmt assn, 2009
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