Examining a Business Failure Paper

Essay by mistoryUniversity, Master'sA+, August 2010

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Enron was an energy company based in Houston, Texas and was one of the world's leading electricity, natural gas, and communications companies. In 2001 it was revealed that Enron's reported financial condition was sustained substantially by creatively planned accounting fraud involving Enron and their accounting firm, Arthur Anderson. The irregular accounting practices, including manipulating stock prices, caused Enron to file for bankruptcy in December of 2001 (Thomas, 2002). The scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s (Hanson, 2002). The following will identify the management and leadership failures which led to the Enron scandal, as well as how these failures could have been predicted. In addition, the following will also show how proper organizational behavior of management and leadership could have impacted the structure of Enron positively.

The collapse of Enron occurred for many reasons including the lack of attention shown by members of the Enron board of directors to the books financial entities and the lack of truthfulness by management about the health of the company and its business operations (Hanson, 2002).

The firm's senior managers had engaged in fraud for an extended period through a scheme in which partnerships owned by the managers could receive payment for goods and services never provided to Enron. Enron's executive team was trying to create an enterprise which would increase wealth amongst their shareholders, however, when it was revealed that Enron's stock prices were less desirable, certain aggressive accounting methods measures were required. Arthur Andersen, auditor and consultant to Enron, helped to make Enron's shares look more favorable and knowingly falsified certified financial statements to make Enron look profitable. Once Enron began this new type of accounting operation, the need to continue this type of deception...