Business Failure

Failure of Enron Corporation

Enron Corporation, called America’s most innovative company for six consecutive years by Fortune Magazine, was the world’s leading energy company. Enron was formed in 1985 by a merger of Houston Natural Gas and InterNorth, involving the transmission and distribution of electricity and gas throughout the United States, but majority of its growth was due to the pioneering marketing and promotion of power and communication bandwidth commodities as well as its related risk management derivatives (Columbia Electronic Encyclopedia, 2009). Under new leadership Kenneth Lay and Jeffrey Skilling, Enron adopted an aggressive growth strategy. To ‘seal the deal’, they hired Andrew Fastow as CFO and it was he, that helped to create the complex financial structure for Enron (Reinstein & Weirich, 2002).
One could say that Enron began to plummet as soon as the company shifted its focus from regulated natural gas domestically to international energy, water and broadband communications – as these were volatile and risky hedging transactions (Reinstein & Weirich, 2002). Engaging in these risky transactions, enabled Enron’s stock to rise but when these three new areas went sour, the stock plummeted as well. Enron’s management did not disclose these losses and liabilities on their financial records nor to the investors of the corporation (Reinstein & Weirich, 2002).
Despite Enron being called the most innovative and having alleged annual revenue of one hundred billion dollars, Enron collapsed in 2001. One might ask how an organization such as this files Chapter 11 Bankruptcy in a matter of years; the answer is simple, a case of poor organizational behavior and poor decisions made by upper level management. This paper will identify the management and leadership failures which led to the untimely demise of Enron Corporation, as well as how the failure of this organization could have been predicted. In addition, it will also show how proper organizational...