enronsfallbykishlay-100716160856-phpapp01

8/2/2019 enronsfallbykishlay-100716160856-phpapp01

1/32


2/32

SPARKS BY:SPARKS BY:SPARKS BY:SPARKS BY:

KISHLAY RAJKISHLAY RAJKISHLAY RAJKISHLAY RAJ

ASHISHASHISHASHISHASHISH ZUTSHIZUTSHIZUTSHIZUTSHI

PRIYAPRIYAPRIYAPRIYA SAROHASAROHASAROHASAROHA

ARPIT TOMARARPIT TOMARARPIT TOMARARPIT TOMAR

NALIN HOODANALIN HOODANALIN HOODANALIN HOODA


3/32

THE BRIEF!!!! The case traces the rise of Enron, covering the

company's business innovations, personnelmanagement, and risk management processes. Itthen examines the company's dramatic fall includingthe extension of its trading model into questionable

,

,governance breakdowns inside and outside the firm.The case offers students an opportunity to explorewhy Enron failed and to understand the systemicproblems in governance that affected its board ofdirectors, the audit committee, the external auditors,and financial analysts.


4/32

KEN LAY JEFF SKILLING ANDY FASTOW LOU PAI


5/32

ENRON TIMELINE1985: Enron formed

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

ct 2 1: Enron reports $638m third quarter loss and $1.2bn fall inshareholder equity Securities and Exchange Commission begins inquiryinto firm.To Ken Lay and Jeff Skilling, Enron's CFO wasn't always the badguy. Indeed, Andrew Fastow was a longtime Skilling protege, and Lay hadalways viewed him as indispensable. After Lay became CEO again, one ofhis 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 faithand confidence in Andy." The next day, Fastow was gone, and Lay hasrecently claimed that the CFO's larcenous behavior sank the company


6/32

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


7/32

2004: Skilling and Lay charged over Enron collapse Former finance chief. Among the77 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'sformer 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


8/32


9/32

WHY BUSINESS ETHICS ??? Discussion on ethics in business is necessary

because business can become unethical, andthere are plenty of evidences as in today onunethical corporate practices.

Adam Smith opined that People of the sametrade seldom meet together, even for merriment

and diversion, but the conversation ends in aconspiracy against the public, or in somecontrivance to raise prices


10/32

Business ethics involves set of actions that

make company more favorable to public andemployees.

It defines the code of conduct for employees

It makes the company activities more legal

and policies more social


11/32

THE BIGGEST QUESTION ????


12/32

IS IT THE MONEY OR IS IT THE PEOPLE


13/32


14/32

SO WE BRING TO YOU

THE ENRONSCANDAL


15/32

ENRON Company Background US energy company

based in HoustonTexas

approximately 22,000

Declared bankrupt in

late 2001

Fraud was detected in

the fact revealing


16/32

ENRON Scandal The scandal was

related to misleadingthe public about thetrue condition of the

company The debts and losses

of the company was

hided and therevenues wereshown increasing


17/32

ENRON Scandal The chairman Mr. Ken Lay

admitted that thecompany performance wasnot good at any point oftime.

The accounting firm ArthurAndersen was alsoinvolved in the wholeprocess and they are alsoblocked from furtherbusiness.


18/32

ENRON Scandal Enron shares hit high

prices near $90 After the fraud

prices fell to $0.12

Large number of

investors lost theirmoney comprising

total loss of $11 bn


19/32

ENRON Scandal- Descriptive Value Changing scenario

To raise its marketstake in a consecutivemanner.

Showed only theprofits to attract morepublic

Wrong approach for apublic company


20/32

How could Enrons and George Bushs

Kenny Boy sell thousands of shares of his

companys once highflying stock just beforeit crashed, leaving employees with

nothing?


21/32


22/32

ENRONs unethical behavior The companys act of

not revealing theinternal informationto employees and

public caused hugelosses

The hiding of

documents related tosome transactionsand debts


23/32

ENRONs unethical Approach The Enron Company did

adopt the utilitarianapproach

The hided and told lies

employees. The higher management

pressurized executives

to discover newmethods to of hidinginformation.


24/32

ENRON should have done Company could have

restructured itsdepartments.

The quality

improvementstrategies should haveintroduced.

Quality improvementswould have led todecrease in losses.


25/32


26/32

ENRON should have done The quality improvements

decreases the errors inmisacts of the company

operation

Enron should haveperformed better if it

could have adopted

dynamic strategy toovercome the changing

environment and market.


27/32

QUESTION :1

What are the systematic ,corporate an

individual issues raised by this case ?


28/32

QUESTION :2

If not then what?


29/32

QUESTION :3

Who in your judgment , was morally

responsible for the collapse of Enron?


30/32

KEN LAY JEFF SKILLING ANDY FASTOW LOU PAI


31/32


32/32

enronsfallbykishlay-100716160856-phpapp01

Documents