1/21/2024 0 Comments Ethical corporate cultureThe result of this system was that it always pushed the bottom 20% of the underperformers out of the company. Skilling was the company’s CEO, and he used a rank and yank system to goad the employees and managers. Heavy focus on performance led to negative use of competition as a whip to herd the employees in the wrong direction. However, these were just the suffice factors. Thus the company fell back and managers had to pay in the form of fines and imprisonment. Many executives and managers knew that the company was following some illegal and unethical practices, but the executives and the board of directors did not know how to make the ethical decisions and corporate ethical culture. Organisational culture supported unethical practises - corruption, cheating, and fake practices were widespread. The entire company’s only focus was financial gain, and managers advised everyone to do everything that led to the company generating more money. They had spoiled the culture to shift the focus towards money and financial benefits. It was a culture of greed and money making - In Enron, greed was good and money was God. In Enron’s case, its corporate culture played an important role in its collapse. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. Many Enron executives were indicted on a variety of charges and were later sentenced to prison. On December 2, 2001, Enron filed for Chapter 11 bankruptcy protection. The SEC (Securities and Exchange Commissions) began an investigation and dug into the details of Enron’s publicly released financial statements. The stock price of the company plummeted from a high of $90 per share in mid-2000 to less than $1 by the end of November 2001, taking with it the value of Enron employees’ 401(k) pensions, which were mainly tied to the company stock. In 2001, everything began to fall apart for Enron executives and shareholders. In one of the company’s last quarterly earnings releases before bankruptcy, its fledgling telecommunications segment reported an operating loss of $137 million. Amid the mania of the dot-com bubble, Enron’s board of directors began investing significant sums of capital into broadband telecommunications equipment - expensive assets that never generated a dime of profit for the company’s shareholders. This allowed the company to write unrealized future gains from some trading contracts into current income statements, thus giving the illusion of higher current profits. Enron would transfer their assets to off-the-balance-sheet corporations, which would record the loss and avoid reporting declining profits at the Enron parent company. To hide losses in its commodity business, CEO Jeffrey Skilling assigned Enron accountants to apply mark to market accounting to fixed assets, such as pipelines or oil refinery assets. When the dot-com bubble finally burst and Enron began to suffer from its significant exposure to the most volatile areas of the commodity market, the company’s executives began looking for ways to hide its tremendous losses. It is not hard to see that Enron had overextended itself. For context, Enron’s entire business had only about $60 billion in assets. In the initial years, trading volumes on Enron Online expanded exponentially by mid-2000, Enron Online was on pace to execute $350 billion in trades per year. Amazingly, Enron was the counterparty to every transaction made on Enron Online. In 1999 - the middle of the dot-com bubble - the company created Enron Online, an electronic commodity & commodity derivatives trading website. However, larger businesses use derivatives primarily to reduce risk - or to hedge, in other words, to hedge against unwelcome changes in commodity prices. Enron made extensive use of commodity derivatives to make money. What complicated Enron’s business structure - and differentiated it from larger peers like Exxon or Chevron - was the company’s involvement in the financial markets. Then it dealt in electricity, natural gas, communication, paper, and pulp. It had built power plants, operated gas lines, and had unique trade businesses. It had an image of an innovative company that could do great things for its customers. Enron had maintained a good reputation in society and among its customers. Once considered a Wall Street Darling, Enron was an American energy company founded by Kenneth Lay in 1985 after the merger of Houston Natural Gas and InterNorth.
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