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Enron: Examining a Business Failure.
According to the Mid-American Journal of Business (MAJB), Enron serves as the absolute example of the perils of large scale success achieved in a short space of time. Created out of the merger of two gas companies in the mid-1980s, Enron began trading gas commodities in 1989 and in the space of a few years became the largest supplier in the USA, with 21,000 employees in 40 countries. Riding on a wave of optimism, Enron began diversifying its portfolio through the use of special purpose entities (SPEs) which allowed the company to embark upon less conventional ventures without necessarily reflecting their cost on its balance sheets.
From 1989 to 1995, Enron was named ‘‘America’s Most Innovative Company’’ by Fortune magazine. In 2001, the chief executive officer (CEO) unceremoniously resigned, the chief finance officer (CFO) was fired, and the company filed for bankruptcy and was the subject of a host of litigation. What happened in between can arguably be labeled the biggest governance failure in corporate history (“Enron, board governance and moral failings,” 2002, p. 23).
Many of the improper transactions and substantial information about Enron’s activities were received by the main Board and were approved for them as well. During 2001 Enron had created an online trading business and formed Enron Online and rapidly became one of the biggest e-business sites in the world.
Enron believed that to succeed it would need to access significant lines of credit to settle its contracts daily, and to reduce the large quarterly earnings fluctuations, which affected its credit ratings. To address these financial needs, Enron developed a number of practices, including “prepays,” an “asset light” strategy, and the “monetizing” of its assets (“Antecedents and consequences of failed governance: the Enron example,” 2005, Para. 15).
Enron began to sell or syndicate its assets, to “special...