Slide 1

ENRONS FALL

SPARKS BY:KISHLAY RAJ ASHISH ZUTSHIPRIYA SAROHAARPIT TOMARNALIN HOODA

THE BRIEF!!!!The case traces the rise of Enron, covering the company's business innovations, personnel management, and risk management processes. It then examines the company's dramatic fall including the extension of its trading model into questionable new businesses, the financial reporting problems, and governance breakdowns inside and outside the firm. The case offers students an opportunity to explore why Enron failed and to understand the systemic problems in governance that affected its board of directors, the audit committee, the external auditors, and financial analysts.

SO FROM ALL THE PLAYERS

KEN LAYJEFF SKILLINGANDY FASTOWLOU PAI

ENRON TIMELINE 1985:Enron formed

Aug 2001The beginning of the end at Enron: Jeff Skilling publicly announced he was quitting as CEO. For many people, both inside and outside Enron, that was when it became clear something was seriously wrong. Enron's stock fell 6 percent the next day, to $40.25. It would never close that high again.

Oct 2001:Enron reports $638m third quarter loss and $1.2bn fall in shareholder equity Securities and Exchange Commission begins inquiry into firm.To Ken Lay and Jeff Skilling, Enron's CFO wasn't always the bad guy. Indeed, Andrew Fastow was a longtime Skilling protege, and Lay had always viewed him as indispensable. After Lay became CEO again, one of his early moves was to negotiate a lucrative extension of Fastow's contract, and Lay defended Fastow in an October 23 conference call, saying "I and the board of directors continue to have the highest faith and confidence in Andy." The next day, Fastow was gone, and Lay has recently claimed that the CFO's larcenous behavior sank the company

Nov 2001:Enron shares sink to 10-year lows as buyout deal falls through and further losses are revealed at the firm

Dec 2001:Enron files for Chapter 11 bankruptcy

2002:Criminal investigation launched

2004:Skilling and Lay charged over Enron collapse Former finance chief. Among the 77 people on the list of potential witnesses for the prosecution, no one was closer to Jeff Skilling than Kenneth Duane Rice. Rice's role as CEO of Enron's broadband business, perhaps Enron's most brazen illusion, placed him onstage in the investigation of Enron. In May 2003, Rice was among seven broadband executives charged in a 218-count criminal indictment. For a year, Rice swore he'd done nothing wrong. Then, on July 30, 2004, Rice cut his deal. He later testified that it was at Skilling's urging that he lied about the state of Enron's broadband network.Andrew Fastow pleads guilty to criminal charges and agrees a 10-year jail term

2005:For nearly two years after FBI agents first led Richard Causey, Enron's former chief accounting officer, into the federal courthouse in handcuffs, he asserted his innocence, claiming that there was nothing wrong with Enron's accounting. In doing so, he provided a valuable buffer for Lay and Skilling, who will insist they relied on his expertise. But three days after Christmas, Causey -- known at Enron as the "Pillsbury Doughboy"-- agreed to plead guilty to a single count of securities fraud, cooperate with government prosecutors, and serve up to seven years in prison.

Jan 2006:Enron trial begins

WHY BUSINESS ETHICS ???Discussion on ethics in business is necessary because business can become unethical, and there are plenty of evidences as in today on unethical corporate practices.

Adam Smith opined that People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices

Business ethics involves set of actions that make company more favorable to public and employees.

It defines the code of conduct for employees

It makes the company activities more legal and policies more social

THE BIGGEST QUESTION ????

IS IT THE MONEY OR IS IT THE PEOPLE

SO WE BRING TO YOUTHE ENRON SCANDAL

ENRON Company BackgroundUS energy company based in Houston TexasEmployed approximately 22,000Declared bankrupt in late 2001Fraud was detected in the fact revealing

ENRON ScandalThe scandal was related to misleading the public about the true condition of the companyThe debts and losses of the company was hided and the revenues were shown increasing

ENRON ScandalThe chairman Mr. Ken Lay admitted that the company performance was not good at any point of time.The accounting firm Arthur Andersen was also involved in the whole process and they are also blocked from further business.

ENRON ScandalEnron shares hit high prices near $90After the fraud detection the share prices fell to $0.12Large number of investors lost their money comprising total loss of $11 bn

ENRON Scandal- Descriptive ValueChanging scenarioTo raise its market stake in a consecutive manner.Showed only the profits to attract more publicWrong approach for a public company

How could Enrons and George Bushs Kenny Boy sell thousands of shares of his companys once highflying stock just before it crashed, leaving employees with nothing?

ENRONs unethical behaviorThe companys act of not revealing the internal information to employees and public caused huge lossesThe hiding of documents related to some transactions and debts

ENRONs unethical ApproachThe Enron Company did adopt the utilitarian approach The hided and told lies to the public and employees.The higher management pressurized executives to discover new methods to of hiding information.

ENRON should have doneCompany could have restructured its departments.The quality improvement strategies should have introduced.Quality improvements would have led to decrease in losses.

ENRON should have doneThe quality improvements decreases the errors in misacts of the company operationEnron should have performed better if it could have adopted dynamic strategy to overcome the changing environment and market.

QUESTION :1 What are the systematic ,corporate an individual issues raised by this case ?

QUESTION :2 If not then what?

QUESTION :3 Who in your judgment , was morally responsible for the collapse of Enron?

SO FROM ALL THE PLAYERS

KEN LAYJEFF SKILLINGANDY FASTOWLOU PAI

A MUST READ

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